Pakistan Beverage Limited (PBL)

SCM REPORT

By,

AAMRA SALEEM (01)

ABDUR RAFAY (03)

AFEERA YAZDANI (05)

SADAF MUSHTAQ (280

Acknowledgements

We would like to express my deepest appreciation and thanks to all those respected

persons and seniors for offering us their immense support and facilitate us all the time of

research and writing of this project.

We express my greatest gratitude to Mr. Shahnawaz Ali Syed, Course Instructor& Advisor,

Iqra University for providing us a superior guideline for my MBA research thesis during

numerous consultations. We would also like to expand our sincere appreciation to all those

who have directly and indirectly provide their assistance in writing this project.

Last but not the least, many people especially my classmates and colleagues have made

important and valuable suggestions on this final project which gave us an inspiration to

improve our final project.

We are also thankful to almighty Allah who has bestowed us with all his best resources and

gave us an ability to study, learn and apply my learning.

ii
Executive Summary

Khaadi first opened its doors in 1998 in Karachi, Pakistan offering customers kurtas and

loose fabric made from hand-woven fabric. Shamoon Sultan, the chairman and founder, had

the intent of reviving the ancient craft of the handloom and popularizing the traditional

medium in a contemporary manner. Khaadi, which means “hand-woven”, has stayed true to

its name and continues to produce a fusion of styles to complement both the east and west,

while still using hand-woven fabrics on select products.

Khaadi defines its lines as Concepts and initially had Prêt (Ready-to-Wear), Unstitched

(Fabric) and Man (Eastern Wear). Over the years, Khaadi has introduced a number of new

Concepts including Khaas (featuring exclusive and limited-edition pieces), Kids (for 2-12

year olds), Accessories (jewelry, stoles and handbags) and Home (featuring furniture,

bedding and bath items).

In 2010, Khaadi entered into the international arena by exporting to various regions. The

online store was launched in Pakistan in 2014 and Khaadi will look to open its digital doors

to various countries going forward. The company continues on its aggressive expansion

strategy by opening several retail stores in smaller cities of Pakistan.In order to further

grow and expand the business in a sustainable manner, we have corporatized our business

and for this purpose have setup Khaadi (SMC – Private) Limited (formally K-Clothing (SMC

– Private) Limited) with effect from 1 May 2016.

iii
Introduction

Success in corporate world is not only good financial health or brand image gathered by the

company, but overall chain and its management reflects the success of a company. Supply

chain for an organisation is a multiparty collaboration in which there are so parties

involved with their own expertise, resources and objectives. Cooperation and collaboration

of various parties is formed through negotiation rather than central control and success of

these efforts allow maximization of profits.

So it can be depicted that global business management is in an era of networking

competition where not only various organisations are competing but their supply chains

are even acting against one another. Presently, level of competition is not assessed with the

company’s financial performance but it has become more crucial with assessment of its

supply chain performance. Competition in supply chain performance has caused increase in

pressures on companies for meeting demands of customer and also in order to achieve

customer loyalty and customer satisfaction

Organizations are realizing that for assuring their survival in the intensely competitive

business environment, there is a need of not only improving organizational efficiency, but

entire supply chain needs to be revitalised with the help of modern managerial and

technical tools. Companies are now more put on to keep their selves up-to-date and

investment shrewdly for developing and applying modern systems, one of the most

popular implementation among most of the companies is enterprise resource planning

(ERP) system.

4
Implementation Need

KHAADI have also managed to get data security, which was the main issue with the

previous data management system. With growing operations of the business it was very

necessary to have any integrated software that can help in efficient data management.

Secondly, Local ERP, Microsoft Excel and Quick Books, were used to generate the advice

over investment plans, accounting, and managing other operations. KHAADI was having

inefficient operational management previously has led the company to implement the SAP

in the business. In the SAP System, several structures can be used to represent the legal and

organizational structure of the company. Organization elements can be structured from the

point of view of accounting, materials management, and sales and distribution. It is

possible to combine these structures. The organizational structures form a framework in

which all business transactions can be processed.

1. Khaadi Business Structure

1.1 Company Code

Company Code Description

1000 Khaadi Manufacturing

2000 Others (Pvt) Limited

A company code is the smallest organizational unit in the system for which a complete self-
contained set of accounts can be drawn up for purposes of external reporting. With Khaadi
company code is defined at client level respectively on (300,500,800)

5
1.2 Plants structure
A plant is an organizational logistic unit that structures an enterprise from the perspective of
production, procurement, warehousing, plant maintenance and material planning. A plant may be a
manufacturing facility or a branch within a company. It is a place where either material is produced
or goods and services are provided. Example: Production Facility, Head Office & geographically
distant warehouse. At KHAADI, multiple plants created as per requirement.

In KHAADI, it is used to represent factories (head office), manufacturing divisions and

geographically distant warehouse.

The key considerations that are taken into account when defining a plant in KHAADI are: -

Material cost – as plant controls how the valuation of each material in the system will be carried
out. If a different material cost is required in a particular organizational unit, then a separate plant
is required.

Authorization control – Standard authorization control is set at plant level i.e. user assigned to
one plant will not be able to access data of another plant if relevant rights are not granted.

6
 2. Production Planning & Control (PP)
2.1 Company Code
Company code is used in order to define the organizational unit for which a complete self-contained
set of accounts can be drawn for external reporting. This includes the entry of all transactions that
must be posted and the creation of all items for legal individual financial statements, for example,
the balance sheet and the profit and loss statement.

The following company code will be defined for Khaadi

Company Code Description

1000 Khaadi Manufacturing

2000 Uni-Brands

2.2 Plant
The following plants will be defined for Khaadi; Production Planning & Control activities:

Plant Description

1000 Khaadi Manufacturing Unit 1

1100 Khaadi Manufacturing Unit 2

1200 Khaadi Manufacturing Unit 4 (Screen Printing Unit)

1300 Khaadi Manufacturing Unit 3 (D.I)

1400 Khaadi Manufacturing Unit 5 (Khaadi Home)

2.3 Storage Location

A storage location is an organizational unit facilitating differentiation between the various stocks of
a material within a plant. Storage locations are created with reference to a plant.

Plant Description

7
1000 SHF Stitching Unit 1

1000 SHF Finishing Unit 1

1000 SHF Weaving Unit 1

1000 SHF Embroidery Unit 1

1000 SHF Cutting Unit 1

1000 SHF Dyeing Unit 1

1000 SHF Cropping Unit 1

1100 SHF Cutting Unit 2

1100 SHF Stitching Unit 2

1100 SHF Embroidery Unit 2

1100 SHF Embroidery Unit 2

1100 SHF Buttoning Unit 2

1100 SHF Fusing/Press Unit 2

1100 SHF Pintuck Unit 2

1300 SHF Embroidery TI

1300 SHF Stitching Unit TI

1300 SHF Block Printing TI

1300 SHF Cropping TI

1200 SHF Screen Priniting unit 4

1400 SHF Cutting KHAADI HOME

1400 SHF Stitching KHAADI HOME

1400 SHF Finishing KHAADI HOME

8
2.4 Material Master
At Khaadi, the following Master Data in Production Planning and Control Module are being used:

 Material Master

 Bill of Material (BOM)

 Resource

 Routing

2.4.1 Material Master

The material master is the data object that contains all information necessary for the business use
of a material, in particular, all settings for procurement, production, storage or sales.

A material master contains both the global data for a given material, which is valid across all
locations (for example, data that is the same for this material in all production plants) and the
location-specific data, which contains settings for the relevant location (for example, a specific
production plant). General data such as the measurements or the weight of a material is set
globally, whereas settings for planning are usually defined locally. This data may therefore differ,
depending on the location.

2.4.2 Material Types

Materials with the same basic attributes are grouped together and assigned to a material type.
Material type allows different materials to be managed in a uniform manner in accordance with the
company’s requirements.

At Khaadi, we will be using the following material types:

Material Type Description

ZSFG Semi-finished materials are components that are either manufactured in-
house (within the manufacturing facilities of a company) or externally
procured and require some value addition before it could be sent to
customers.

ZFGS At Khaadi, the finished materials are available in a ready to sell status at the
finished goods warehouse.

ZRAW

9
 ZPKG

2.4.3 Procurement Type

Procurement Type defines how the material is procured. The following procurement types are
possible:

 The material is produced in-house (E).

 The material is procured externally (F).

 The material can be both produced in-house and procured externally (X).

At Khaadi , procurement types are as follows:

Material Type Procurement Type

Type Description

ZFGS X Both Procurement Types

ZSFG X Both procurement types

ZRAW F External procurement

ZPKG F External procurement

2.4.4 Production Storage Location

In case of a material produced in-house, it is the receiving storage location to which the receipt of
the material is posted. If the material is a component, it is the issuing storage location from which
the material issuance is posted.

2.5 Bill of Material

A Bill of Material (BOM) is a complete, formally structured list of components (raw or semi-finished
materials), which are needed to manufacture a finished product. The BOM list contains the material
number together with quantity and unit of measure of each component. The header of the BOM
contains the information of the material whose BOM is to be maintained. A finished product may be
manufactured from multiple semi-finished components.

10
In SAP all BOMs are single level, BOMs are maintained for all the semi-finished states of the finished
product and of course for the finished product. Therefore, multiple SINGLE level BOMs constitute a
complete product structure.

BOM yields the quantitative recipe which is used by the MRP as its basis; these define the
relationships of assemblies (finished products and semi-finished) and their components (packaging
and raw materials). Thus, BOM becomes a framework on which the entire planning process
depends. As a vital part of MRP, BOM must be accurate and up to date for its output to be valid.

The quantitative recipe of the BOM is also significant to controlling issuance of components for
production and also for product costing. Wastages/Scrap during the production process will be
treated as Co-Products in the Bill of Material. While creating BOM the following data is taken into
consideration:

Information Required Descriptions

Material Number Finished or Semi-Finished product whose BOM is to be created.

Plant Plant, to which the BOM belongs.

Component The list of materials required for manufacturing a product.

Component Quantity Quantity required for producing the base quantity of finish product.

Base Quantity Quantity to which all component quantities in a BOM relate.

Component Scrap Percentage of scrap that occurs during production.

2.5.1 BOM Structure

At Khaadi, BOM would be maintained for both finished products and semi-finished products that
are produced in-house. Examples of semi-finished and finished materials may be as follows:

Following is the example of SFG’S and FG of a particular style:

In the following style SFGS are consuming four fabrics that are

1 Tanchoi

2 Jacquard

3 Medium Silk Greige

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4 ShafoonGreige

Subsequent SFGS and raw materials at different levels. Each SFG has its own BOM.

DYED_MED_SILK DYED_MED_SILK PRINT_DUPATTA PRINT_THAN_ME

_THAN(BEIGE)(gr _THAN(GREEN)(g _SHAFOON D_SILK(PINK) CUTTING_FRONT
eige med.silk) reige med. silk) (shafoon) (greige. Med. silk) _PANNEL(tanchoi)

CUTTING_SIDE_
EMB_ADDA_DYE
BACK_TRS_PAN
D_MED_SILK_GR
NEL(jacquard,
EEN_THAAN
tanchoi)

EMB_MAC_FRON
RESHAPING
T_PANNEL

STITCHING AND
CROPING

FINISHING

Material Number Semi-Finished State

SFG-001 DYED_MED_SLIK_THAN(BEIGE)

SFG-002 DYED_MED_SILK_THAN (GREEN)

SFG-003 PRINT_DUPATTA_SHAFOON

SFG-004 PRINT_THAN_MED_SILK(PINK)

SFG-005 CUTTING_FRONT_PANNEL

SFG-006 CUTTING_SIDE_BACK_TRS_PANNEL

SFG-007 EMB_ADDA_DYED_MED_SILK_GREEN

SFG-008 EMB_MACH_FRONT_PANNEL

SFG_009 RESHAPING

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 SFG_010 STITCHING AND CROPING

FG_001 FINISHING

DYED_MED_SILK DYED_MED_SILK
_THAN(BEIGE)(gr CUTTING_FRONT CUTTING_SIDE &
_THAN(GREEN)(g PRINT_THAN_ME PRINT_DUPATTA
eige med.silk) _PANNEL(tanchoi) BACK_PANNEL(ta
reige med. silk) D_SILK(PINK) _SHAFOON
nchoi)
(greige. Med. silk) (shafoon)

EMB_ADDA_DYE
CUT_TROUSER D_MED_SILK_GR
EEN_THAAN

STITCHING_DUP
ATTA
STITCHING_TRO EMB_MAC_FRON
RESHAPING
USER T_PANNEL

STITCHING AND
CROPING

FINISHING

Separate material codes will be opened for every two piece style which can be sold individually. The
above style comprises of KURTA , DUPATTA AND TROUSER, which can be sold individually, so in
the above diagram each of three different materials have been manufactured individually having
their respective BOMS.

2.5.2 Creation of BOM

Process Description Process owner Triggering event
Create BOM A fundamental activity required for all Master Data When SAP
types of semi-finished and finished Management landscape is being
materials. Team created or when a
new material
The merchandiser would define a base would be brought
quantity for the parent material (for into production.
which the BOM is being created) and

13
 would also define the components
quantity required.

At Khaadi, Master Data Management Team is responsible for creating all the Standard BOMs with
Production Status. The Production BOM are created as shown below:

PP-MD-6.2.2 Create Production BOM

Version: Draft
Marketing
Manager

Start
Manager Production

Receive request
BOM creation

Identify
Materials
Required
Management Team

Create
Production
Master Data

No Create
Materials exist Material Routing
(MM01)
No

Yes Create and Save Production Yes

BOM with Routing
“Production” Status Exists ?
(CS01)
Merchandiser

Stop

Develop
Production BOM

2.6 Resources/Work Centre

Resources (Work Centers) are production facilities (or group of people) where any production related
operations are carried out. Every resource is assigned a capacity. Capacity refers to the ability of resource to
perform a specific task or operation with reference to a time frame. Examples of Resources may be:

Work
Description
Center

ST_U2 Stitching Unit2

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 EM_U2 Embroidery
Unit2

CT_U2 Cutting Unit2

ST_U1 Stitching Unit1

The number of work centers can be added to accommodate the variations in the process. Location wise
Processing units are opened in the system for example, an individual processing unit will be opened Stitching
lines in Unit 2, and similarly embroidery unit will be opened for all the machines in a unit for Embroidery
machines. Planning of materials on individual lines is not possible, however it is known that on which
processing unit the production will take place.

2.6.1 Resource Categories

Resources are subdivided into categories to specify their suitability for certain purposes or their use in
certain processes. Resources / work centers are machines in the stitching unit that would fall in this category.

2.6.2 Resource Significance

We assign resources to operations Routings and production Orders to specify with whom or at
which parts of the plant a process step is carried out.

The data in the resource are used, for example, for:

2.6.3 Scheduling
The calculation of start date and end date of an operation is done via scheduling. Scheduling formulae are
maintained in resource (work centers).

2.6.4 Costing
At Khaadi, the costs are monitored for each resource (Work Centre). Therefore, each resource
(Work Centre) would be assigned to a cost centre. Formulas for calculating the operation costs are
also maintained in the resource (Work Centre).

2.6.5 Capacity Requirements Planning

Capacity is the ability to perform a specific task with reference to time. It is defined in terms of
machine hours or production hours. Capacities can be entered and changed in resources as well as
independently. Formulas for calculating capacity requirements for an operation are maintained in
resources. Following data is maintained as part of the capacity requirements planning relevant
data:

 Factory Calendar (Working Calendar for Production Plant)

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  Number of Shifts

 Length of Breaks

Information Required Descriptions

Resource Number Number that identifies a resource uniquely

Plant Plant, to which the resource belongs to

Resource Category A resource category groups resources according to their

characteristics and use. The resource category controls the
screen sequence and field selection. This means it determines
which data is to be maintained for the resource.
Commonly used resource categories are Labour, Machine,
Storage resource or processing unit etc.

Capacity Capacities assigned refer to the number of hours a resource is

available for production, along with the formulas of calculating
the capacity requirement in that resource

Scheduling A capacity is used to calculate the start and finish dates of an

operation.

Costing Assignment of Cost Centre and its activity types to calculate the
cost of every activity in a resource.

2.6.6 Creation of resource

The process flow for creating the resource is as following:

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 PP-MD-6.3.3 Work Centre
Version: Draft

5-10 Year
CEO / Director

Start Forecast for

Enhancements

Need for No
Enhacements

Yes
Production
Manager

Requirement for Identification of

workcentre with new Capacity/Specification
Specifications Requirement
Committee
Executive

No
Approval END

Yes
Purchasing
Manager

Resource Create Purchase

Available on Site Order for WorkCentre
Management
Master Data

Team

Transfer Custody
to Appropriate Workcentre creation
Department (CR01)

2.7 Routing
In the Routing, the processes (list of operations/ a given sequence/ task list) to be used for
producing materials as well as the resources and components required for production are defined.
At Khaadi, Routing is created for all semi-finished and finished materials and every machine. The
Routing may consist of multiple operations and phases. Example, Cutting of Pannells may be
performed in Cutiing_Unit2.

Several materials required for the execution of a specific process step can be planned for an
operation. These materials must be components of the BOM for the material to be produced.

The following standard value keys are created for Khaadi

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Standard Value Key Activity Types

ZPDW Machine Labour VOH FOH No. of Persons

ZPCT Machine FOH VOH

2.7.1 Creation of Routing

At Khaadi, the Master Data Management Team is currently responsible for maintaining both the
BOMs as well as the Routings. The Production Routing is created as shown below:

PP-MD-6.4.1 Production Routing Creation

Version: Draft
Production Manager

Receive request
for Routing Formulation for
creation Routing

Start

Identify Materials &

Resources Required

Yes
BOM exists ?
Create and Save Routing
(CA01 )
Master Data Management Team

No

Create BOM

Master data Yes Creation of

relevant End
exists?
master data

No

2.8 Production Planning

Production Planning is a part of the SAP Business Application suit, which offers the information for
planning materials required to be produced or procured. In planning process, production
requirements are originated from Sales Forecast or from direct sales orders in certain cases which,
in turn, is transferred to Production Planning via Demand Management in the form of Planned
Independent Requirements.

Demand Management is a function in SAP PP module that serves the purpose of matching
production plan (supply) with the sales targets (demand). In other words the function of demand

18
management is to determine the requirement quantities and delivery dates for the end products
(finished products) that a company produces.

In SAP, the demand program created via Demand Management is saved as Planned Independent Requirement
(PIRs). PIR is a planned requirement quantity for a finished product in a period of time. It is based on demand
created via the sales forecast and not on the sales orders. The PIRs, in turn, are consumed by the incoming
sales orders, depending upon the planning strategy used.

The creation of demand program also requires the definition of a planning strategy for a product.
With the help of planning strategies, the SAP system decides if the production is triggered by Sales
Orders (Make to Order production) or if it is not triggered by sales orders (make-to-stock
production).You can have sales orders and stock orders in the demand program. If the production
time is long in relation to the standard market delivery time, you can produce the product or
certain assemblies before there are sales orders. In this case, sales quantities are planned, for
example, with the aid of a sales forecast.

The PIRs (demand program) become the input for the MRP run. MRP run calculates the quantities and
planned dates for the materials as well as operations and phases, thus generating the capacities plan. The
result of this process could be evaluated in the Stock/Requirements List for materials requirements, and
Capacity Loads for capacity requirements. Provided that materials and capacities are available, production
can be executed.

Planning of Style is done in-house however the subcontracting of SFG is possible at every level i.e. Cutting,
Stitching, Embroidery, packing, dyeing etc. Planning of weaving fabric is performed irrespective of Finished
Good Style. Which means when fabric is planned to be weaved it is not known on which article it will be used.
Planning of Fabric (in-house Khaadi weaved) will be performed independently in SAP system. Further
processing can be performed on weaved fabric that can be printed, embroidery or any other value addition
that was not planned. So the process of value addition without planning are performed manually without
planning in SAP.

Planning of a style is being done once fabric is received, which means actual dates cannot be determined by
system as fabric receiving may vary, However actual execution time is catered and is entered in SAP system
that will provide the dates and execution duration of production.

2.9 Sales and Operational Planning

Sales Forecast is the amount of sales (in units) a company expects to achieve during some future
period under a given marketing plan and expected market conditions. The sales forecast identifies
the amount of units that are likely to be sold. Sales Forecast is used for transferring data to

19
Production, which is being maintained by the Marketing Manager of Khaadi. Previously, marketing
department at Khaadi prepared an annual plan.

Planning department every month receives Forecast from Sales Department; procurement for the
raw and packing materials is triggered based on monthly forecasts.

2.9.1 Creation of Marketing Forecast

The planner uploads the forecast received from marketing department into the Sales and Planning
Table and save it as Marketing Version. This version is termed as Marketing Forecast and is used for
reference purposes only. It is not used directly for planning.

PP-DM-7.1.3 Creation of Active Version

Version: Draft

Start
Planning Manager

Marketing
Marketing
Marketing
Forecast
Forecast
Forecast

Upload RSF to
Copy to Active
Market Forecast
Version
Version

In Khaadi Standard Sales Operational Planning is used, as Planning is based upon the total order
quantity of Material. Which means that material wise marketing forecast is entered into the system.

2.10 Demand Management

2.10.1 Process Definition

Demand Management determines requirement quantities and delivery dates for finished products
assemblies. To create a demand program, Demand Management uses Planned Independent
Requirements and Customer Requirements. Planned Independent Requirements (PIRs) are used to
determine the quantities of a material required in a particular time period. The PIRs could be both

20
manually maintained or determined using Sales and Operational Planning. Customer Requirements
represents the Sales Orders in the system. Once a sales order arrives, the PIRs are reduced.

2.10.2 Planning Strategy

In Khaadi, Make to Stock planning strategy is followed. Make-to-stock strategy is used when stocks
are produced independently without a direct reference to a sales order. The requirements from the
sales orders are met from those stocks. For this strategy production would be based on the sales
forecast. This means that make-to-stock strategies can support a very close customer-vendor
relationship because the objective is to provide customers with products from stocks as quickly as
possible.

At Khaadi, Strategy Type “Planning with final assembly” is also used for Make to Stock production.
In this planning strategy, procurement and production of all components and assemblies is
triggered by the forecast. Procurement Proposal is generated for the semi-finished materials, raw
and packing materials based on the Forecast. Khaadi also performs the embroidery on Lawn fabric
for UNI-BRANDS. So separate orders will be created with reference to embroidery of lawn prints
style material in Khaadi Manufacturing Plant/Plants and their independent demand is entered in
SAP.

2.10.3 Planned Independent Requirement (PIR)

The planned independent requirements provide the information that which finished materials are
to be produced, when these should be produced and in what quantities. Planning of Lawn fabric will
be performed in system, planned requirements will be entered in the system style wise for Uni-
Brands as well.

21
PP-DM-7.2.3 Planned Independent Requirements
Version: Draft

Start
Planning Manager

Marketing
Marketing
Marketing
Forecast
Forecast
Forecast

Upload RSF to
Market Forecast Copy to Active
Version Version
Demand Management

Trasfer to Demand
Management

Planned Independent
Requirements

2.11 Material Requirements Planning

2.12 Process Definition

The Demand Plan generated by the demand management in the form of planned independent
requirement becomes the input for MRP.

2.13 MRP Functions

MRP run performs the following functions:

 Material Requirement Planning;

 Lead Time Scheduling;

22
 MRP also calculates the capacity loads for all the resources engaged in different operations and
thus calculates the capacity requirements according to the operation hours defined earlier in
the Routing.

2.14 MRP Process Flow

Process Description Process owner Triggering event

Run MRP at This function would be carried out MRP Routine business
plant level by the Planning Manager every Controller/ practice
week/month. In the MRP run, Planner
system would perform the netting
i.e. would calculate the net
requirement of all the materials
existing at the plant that are
relevant to the Materials
Requirement Planning by
subtracting the stock at hand and
scheduled receipts from the total
requirements of the materials. The
MRP run uses the BOM explosion
to calculate the requirements of
the materials. The MRP run applies
the lead time on top of the net
requirements to calculate the
planned order release date.
Based upon the production plan the splitting of planned independent requirements, the planner
runs MRP at the plant level. No scheduling and capacity requirement planning is possible at
planning level as only unit on production unit is identified not LINES. However, overall load on a
processing unit can be determined. The process flow for MRP at Khaadi is given below:

23
 PP-MRP-8.4 Materials Requirement Planning (MRP)
Version: Draft

Planned Independent
Requirements

Split Planned
Independent
Requirements

Stock
Planner

MRP List
Execute MRP Run at Requirement List
Plant Level
(MD02)

Save Planning Results

Creation of Planned
Orders or Purchase
Requisitions

END

2.15 Production Order Management

Production Order management is a process that is used to convert the raw and packing materials
into the finished and semi-finished products. .

A Production Order describes the production of materials in a production run. A Production Order
defines the following:

 Which materials are to be processed

 What quantities are to be produced

 Which resources are to be used

 When (at what time) is that order to be processed (scheduling)

 It also defines how the order costs are to be settled.

24
2.15.1 Production environment at Khaadi
At Khaadi, Production Order Management would be used for SFG manufacturing as well as Finished
Good Manufacturing. There is no standard /Uniform Process for the manufacturing of a garment.
Following facilities are currently available in Khaadi:

 Cutting
 Embroidery
 Computer Embroidery
 Machine Embroidery
 Adda Embroidery
 Printing
 Block Printing
 Screen Printing
 Stitching
 Fusing / Press
 Pin tuck
 Buttoning
 Weaving
 Packing

The production environment at Khaadi can be broadly categorized into these separate areas:

a. Stitching Unit 1

b. Finishing Unit 1

c. Weaving Unit 1

d. Machine Embroidery Unit 1

e. Adda Embroidery Unit 1

f. Cutting Unit 1

g. Cutting Unit 2

h. Stitching Unit 2

i. Machine Embroidery Unit 2

j. Computer Embroidery Unit 2

25
k. Buttoning Unit 2

l. Fusing/Press Unit 2

m. Pin tuck Unit 2

n. Computer Embroidery TI

o. Machine Embroidery TI

p. Adda Embroidery TI

q. Stitching Unit TI

r. Block Printing TI

s. Screen Printing unit 4

These are capacity planner groups for Khaadi.

2.15.2 Material Assignment for Production Orders

Production Orders are created for materials those are produced in-house. At Khaadi, Production
Orders would be created for the following material types:

a. Semi-finished (ZSFG)

b. Finished (ZFGS)

Cutting and packing of Lawn prints will be performed in-house using production orders.

2.15.3 Production Order Types at Khaadi

To cater to the production environments mentioned above, order types are created in SAP. The
order types in SAP contain information which is necessary for managing orders. Order types are
used for scheduling, reporting and identifying cost elements in an order. At Khaadi, different order
types are used for each area of manufacturing the details are given below:

Order
Plant Description
Type

ZSTC 1000 Production Orders for Stitching (U1)

ZCUT 1000 Production Orders for Cutting (U1)

26
ZEMB 1000 Production Orders for Embroidery (U1)

ZRSP 1000 Production Orders for Reshaping (U1)

ZWEV 1000 Production Order for Weaving (U1)

ZDYE 1000 Production order for Dyeing (U1)

ZFIN 1000 Production Order for Finishing (U1)

ZSTC 1100 Production Orders for Stitching (U2)

ZCUT 1100 Production Orders for Cutting (U2)

ZEMB 1100 Production Orders for Embroidery (U2)

ZRSP 1100 Production Orders for Reshaping (U2)

ZPTX 1100 Production Order for PTX (U2)

ZSTC 1300 Production Orders for Stitching (D.I)

ZEMB 1300 Production Orders for Embroidery (D.I)

ZRSP 1300 Production Orders for Reshaping (D.I)

ZBLP 1300 Production Orders for Block Printing (D.I)

ZPRT 1200 Production Orders for Screen Printing (S.P)

ZCUT 1400 Production Orders for Cutting(KH)

ZSTC 1400 Production Orders for Stitching (KH)

ZEMB 1400 Production Orders for Embroidery (KH)

ZRSP 1400 Production Orders for Reshaping (KH)

ZRES 1400 Production Order for Finishing (KH)

27
 ZLCP 2000 Production order for Lawn Cutting and Packing

2.15.4 Production Schedulers at Khaadi

In SAP, Production Schedulers are also defined with respect to each Production Order Type. A
production scheduler is a person responsible to manage the Production Orders within a particular
production area. Production Scheduler would manage activities like Production Order creation, its
scheduling, re-scheduling and its release. For example, there is a unique production scheduler
Stitching.

2.16 Life Cycle of Production Order Management

The life cycle of a Production Order consists of the following stages:

3. Production Planning

4. Production Order execution

5. Order closing

5.1.1 Production Order Planning

It comprises all activities that are performed during the creation and the release of a Production
Order. Important steps in process planning are:

 Production Order creation

 Selection of Routing

 Production Order release

5.1.2 Production Order creation

Production Orders are generated against the Routing/ production version and contain all the
information specified for process planning. In SAP, the Production Orders could be created in the
following ways:

 Converting a planned order.

 Manual/direct creation.
 Copying from an existing Production Order.

Separate Fields will be opened on order to determine on which LINE the production has been
executed for reporting purpose only.

28
All of the above three processes would require a production version from which the master data
regarding the Routing would be automatically copied. When a Production Order is created the
following actions are carried out:

 A Routing is selected.

 The bill of materials is exploded and the items in the bill of material are transferred to the
order.

 Reservations are generated for stock items. The reservation is a request that is sent to
store so that components required for the production of a particular semi-finished or
finished material could be staged/ arranged. The purpose of a reservation is to ensure that a
material is available when required at the shop floor. Each material component of the order
receives a separate item number within the reservation. (Reserved materials can be
withdrawn from the warehouse for the order that has been released. On withdrawal, the
values of the material components are updated as actual costs in the order).

 The planned costs for the order are generated.

 The capacity requirements are generated for the resources.

 System would schedule the order i.e. starting with the basic order dates; the system
automatically schedules the Production Order at the time of order creation. In addition, it
can later be rescheduled automatically or manually whenever changes relevant to
scheduling have been made.

 System would also perform an automatic availability check for the components and would
generate exception messages in case of the material shortfall..

 Saving Production Order completes the order creation process. System would generate a
Production Order number as soon as the production scheduler saves it. The status of the
Production Order is automatically set as “CRTD” i.e. created. At Khaadi, the Production
Orders are created by converting planned orders. However, Production Orders can also be
created without a reference to planned orders i.e. manually.

29
 1.1.1.1. Production Order Creation via the Conversion of Planned Order

PP-POC-10.1.1.1 Planned Order Conversion to Production Order

Version: 1.0
Controller
MRP

Material
Start Requirements
Planning

Convert Planned
Order into
Production Order
Production Manager / Scheduler

Schedule Order

Save Production
Order

Schedule Order
Production
Order #

End

5.1.3 Production Order Release

The release of the Production Order represents the end of process planning and is the prerequisite
for carrying out the business functions for Production Order execution and process management. A
Production Order must be released, before it can be processed at the shop floor, once an order is
released materials required for manufacturing with this order can be issued. Release triggers the
following functions:

 Batch numbers would be generated (if and where required).

30
1. Khaadi Shop floor papers (Stock Issuance Slip etc) would be printed.

2. Goods movements for the order can be executed.

3. Confirmations for the order can be executed.

Process Description Process owner Triggering event

Production Production Order release would be Production Routine business

Order Release carried out by the production scheduler activity required to
scheduler which heralds the start of be performed every
actual execution at the shop floor. time a new
Production Order
Once the production manager decides would be started at
to release a Production Order, system the shop floor.
would schedule the order
automatically. System would cost the
order automatically, check for capacity
availability and material availability.

Based on the capacity availability, the

production scheduler would save the
Production Order release. The system
would also change the status of the
Production Order from CRTD (Created)
to REL (Released).

If there is not sufficient Available

Capacity, the System will issue Warning
Message.

5.2 Production Order Execution

The Production Order Execution in SAP comprises of the following activities:

1. Printing shop floor documents.

2. Carrying out material withdrawals.

3. Recording confirmations i.e. recording the order progress status.

4. Posting goods receipts from production

31
5.2.1 Material Staging/Pull list
It is mandatory to get the components staged to the production floor for consumption during
production. Using the pull list (it is a document against which the material staging takes place), the
components are staged from the central warehouse to the production storage location. The pull list
checks the stock situation at the production line, calculates the missing parts for the components
and triggers replenishment for these missing parts. The pull list controls the internal material flow
of supplies to production. It is assumed that the components required by production have already
been produced in-house or procured externally, and now simply have to be transferred from their
current storage location to the production storage location (material staging within the plant).
However, for the sake of availability check of the components, a collective availability check could
be run (MDVP).

On the basis of the Production Order, Material Staging will be performed in which stock transfer
from Raw and Packing Store to Shop Floor Store takes place. This stock transfer does not have any
financial impact on the inventory. In Khaadi, Materials are issued to Shop Floor via Reservation for
ALL the materials required. The process flow for material staging is shown below:

32
 PP-POE-10.2.1 Material Staging
Version: Draft

Production Order
Production Manager

Production Order
Release

Pull list
Main Raw/Packing Store

Update Stocks
Store to Store
Material Staging

Material
End Document

5.2.2 Goods Issuance against Production Order

The issuance of raw/semi-finished materials from the Shop Floor Store to the Production Order.
When a Production Order is created, the system automatically generates a reservation for the
required material components. Each material component of the order receives a separate item
number within the reservation. Reserved materials can be withdrawn for the order that has been
released. At the time of Issuance, the Batch number for the semi-finished materials will be required.
Subsequently, the values of the material components are updated as actual material costs in the
order.

33
The processflow for Goods Issuance is shown below:

PP-POE-10.2.2 Goods Issuance

Version: Draft

Production Order
Production Manager

Production Order
Release

Pull list
Main Raw/Packing

Store to Store
Material Staging Update Stocks
Store

Material
Document
Shop Floor Incharge

Issuance against
Process Order Update Stocks

FI/CO Material
Document Document

34
Order wise good issuances will done; i.e. when order will be created, reservation of materials as per
BOM requirements are created, store personnel will issue the material and as soon as material
issues against order it will be consumed.

5.2.3 Production Order Confirmation

Confirmations are used to document the processing of orders or operations such as production
quantities, durations and activities. Data specified in a confirmation would be as follows:

 The quantity in an operation that was produced as yield, scrap; issued as components and
returned as un-used materials.

 How much work was actually done?

 Resources used for the operation.

The following business transactions can be executed via confirmations:

 Updating order data (for example, quantities, activities, dates, status).

 Automatic goods receipt (for one operation per order max.).

 Reduction of the reserved capacity for the resources.

 Updating costs based on confirmed data.

 Updating MRP-relevant excess or missing quantities in the Production Order.

At Khaadi, confirmations are to be carried out for each operation. Each operation of the Production
Order has to be confirmed individually, so that the yield and order status can be tracked at shop
floor level. It is possible that the confirmations which were made were incorrect and the user wants
to reverse/cancel confirmation. So the system will allow the user to cancel the confirmation.

Confirmations are performed SIZE wise. For example, it is notified at the time of cutting that which
panel for which size is being produced. So multiple confirmations are made depending upon the
size-wise variants of same material.

Separate material codes are opened for color variants or combo styles, each material code for each
color variant.

35
Process Description Process Triggering event
owner
Production Confirmation is a process where the Shop floor in- Routine business
Order production personnel enters the date charge activity required to be
Confirmations of manufacturing, start time, end performed every time
time of production and actual yield a production process
obtained in a production run. has been completed.

36
The Flow of the process for Confirmations is as shown below:

PP-CNF-10.2.3 Confirmations
Version: 1.0
Shop Floor Shop Floor Production
Incharge Manager

Production
Order
Release

Post
Confirmation
Store

Material
Goods
Document Update Stocks
Issuance

FI-CO Documents
Update Costs
Finance

End

5.2.4 Goods Receipt

At Khaadi, the Goods receipt is carried out manually by the production personnel /supervisor

Process Description Process owner Triggering event

Goods receipt In this activity, the production Production It is a post
personnel would post goods receipt Manager / Shop confirmation
against the Production Order by Floor In charge process.
entering the quantity (yield) of the
material produced and its date of
production (date of manufacturing).
At the time of Goods Receipt, Batch
may be created for semi-finished and
finished materials and characteristic
values maintained.

37
Inspections after production of SFG are performed depending upon the requirement of production
or process. The Flow of the process for Goods Receipt is as shown below:

PP-GR-10.2.4 Goods Receipt

Version: 1.0
Production
Manager

Production
Order
Release
Shop Floor
Incharge

Automatic
Generation of Goods Reciept Confirmations
Batch
Manager

Material
Store

Goods
Document Update Stocks A
Issuance
Finance Manager

FI/CO A
Document Update Costs

End

5.2.5 Material Return to Store

This is covered through Materials Management Process “Transfer Posting”. Material Return to Store
is a process in which the materials are transferred from on store to another store, within the same
plant.

38
 PP-MR-10.2.5 Material Return
Version: 1.0
Shop Floor
Incharge

Material
Transfer Update Stocks
Document
Posting (Reduced)
Manager
Store

Update Stocks
End
(Increased)

5.3 Order Closing

Order closing involves the TECO, Order settlement and Production Order Closing activities.

5.3.1 Technical Order Closing of Production Order (TECO)

Technical completion means ending a Production Order from a logistical viewpoint. This function is
used, if the execution of an order has already been completed.

The following actions are executed if an order is set to Technically Complete.

 The order is not relevant for MRP planning

 Reservations are deleted

 Capacity requirements are deleted

 The order and its operations receive the system status Technically Completed (TECO)

When Production Order has the status of TECO, Controlling can have that order to be settled to
have the actual costs incurred for the order to one or more receiver cost-objects.

5.3.2 Order Settlement

The complete or partial crediting of an Order, The costs that have accrued to an Order are debited
to one or more allocation receivers in financial or management accounting (for example, to the
account for the material produced).

39
5.3.3 Closing a Production Order
After a Production Order has been settled, its status is set as Closed (CLSD). Closed orders have
following characteristics:

 No more costs can be posted to the order, that is, confirmations and goods movements are no
longer permitted for the order.

 The order can no longer be changed. Exceptions to this are revoking the CLSD status and setting
the deletion flag.

 All actions relating to the status technically completed(TECO)are executed.

5.3.4 Prerequisites for Order Close

Prerequisites for setting the CLSD status are:

 The order must have the status Released (REL) or Technically completed (TECO)

 The order balance must be 0

 There can be no future change records from confirmation processes.

 A Production Order after being closed can be set for Archiving run.

5.4 BARCODING
A unique Barcode for Order is generated from SAP at the time of order creation. Barcode comprises
of Order No., Material No. and Line of Production. Upon scanning of BARCODE remaining quantity
to be confirmed on order is displayed on screen along with standard activities required to be
confirmed over the order. Change in activities and Yield will be performed manually.

40
PP-BCD-11 Bar Coding
Version: 1.0
Shop Floor Production Production
Manager

Production
Order Create
Order

Bar Code
Generation
Store

Material
Goods Document
Issuance
Shop Floor Incharge

Confirmation
Material
using Bar
Document
Code
(Scanning)
Mannual
Changing of
activities and
Posting

41
5.5 Reports
The reports are made available through following channels:

 SAP Standard Reports

 SAP Ad-hoc Query (a tool – training would be provided to Power User, who will make the
reports at their own)
 SAP ABAP Reports – where SAP standard and Ad-hoc query does not meet Users
requirement, such report would be made through ABAP.

Below is the selected list of standard SAP reports pertaining to Materials Management (MM)
module covering both the Inventory Management (plant, material, storage location etc.) and for
its relevance in PP module.

Sr.# Name & Description Availability in SAP

1 Goods Receipt w.r.t. Movement Types and Document Type MB51

2 Issuances / Receipts as on Posting date MB5B

3 Storage Location Analysis (Value Received/Value Issued). MCBC

4 Plant Analysis (Value Received/Value Issued). MCBA

5 Material Analysis (Value Received/Value Issues) MCBE

6 Warehouse Stocks of Material(s) MB52

7 Stock Overview MMBE

8 Stock / Requirements List MD04

42
 6. Material Management (MM)
6.1 Procurement Process

This section documents the Procurement functionality available in SAP Materials Management and
how it can be used to cover the current procurement activities in KHAADI. Purchasing activities in
the case of procurement of material (Local or Import) are normally initiated with the receipt of a
purchase requisition from the user department. Plan orders can be generated automatically from
MRP and in CMT cases further can be adopt into Production Order or Purchase Requisition.

Purchase requisitions can be generated automatically (MRP) as well as by direct user input. Actions
are taken according to the nature of the material to be procured. Whether there is a single source of
supply or multiple sources of supply, the vendors are evaluated by sending the Request for
Quotation (to already short listed vendors).

Once the quotations are received and after carrying out the technical evaluations, the quotations
are fed into the system. The next single-step process generates a price comparative list of
quotations. The viable supplier is then selected and a PO is prepared accordingly. The system offers
a specific release strategy, according to which, the authorized person releases the Purchase
Requisition and Purchase Order.

6.1.1 Consumption Based Planning

43
In KHAADI, CBP will be used mainly for planning of Regular consumption itemsCBP can be executed
in two modes:

1. Scheduled MRP run

2. Ad-hoc planning run

In scheduled MRP run, the planning is carried out for all materials subject to CBP at regular, pre-
defined scheduled MRP runs. However, if planning is required for a single material then MRP can be
executed at single item level (through a separate transaction in SAP). In both cases, the purchase
requisitions are created which purchasing department further processes.

There will be a quota for defining vendor specific ratio, which enables the system to compute which
source of supply to assign to a requirement for a material. The quota arrangement facilitates the
determination of the applicable sources of supply for a purchase requisition at a certain time.

6.1.2 Purchase Requisition Process

In KHAADI, all of the sources utilized to generate purchase requisitions, both automatically by MRP
as well as by direct user input. For purchase requisitions that are generated by direct user input,

44
the nature (purchase Group) of purchase will be specified by the end user. A PR can be created for
a stock material, non-stock consumable, services, sub contract and asset etc.

New Material or Service Master Record will be created, if required. Else Purchase Requisition will
be created with valid Material code or Service specification. An online approval strategy will also be
applied to all PRs that are created through direct user input. Any further processing will be subject
to the approval of PR. Workflow will be triggered and email will be sent to the concerned user for
PR approval. After approval, an email will be sent to the relevant persons for further processing.

Once a PR is approved, RFQ processing can be initiated or it can be assigned to a source of supply
by purchase department and then converted into purchase order. The source determination, RFQ
processing and PO processing is discussed in detail in later sections of this document. PR
information shall be available throughout the organizational hierarchy to all the concerned users so
that they can execute their respective area of responsibility with the help of this document. The
respective users shall be able to monitor the status of their requirement from source determination
to the delivery.

6.2 RFQ Process

In KHAADI, RFQ generates as per company’s procurement policy with the intention of determining
source of supply. The purchasing department can have a price list available with them, which can be
used to maintain the quotations. Price can be updated in quotation.

45
The other option is to Print the RFQ and send it to potential suppliers. The supplier quoted prices
will be maintained in the quotations. A price comparative list will be generated for the selection of
most suitable price and vendor.
The acceptable Quotation will be used for creating purchase order
or for Purchase information Record (if the quotation is valid for longer period). Rejection indicators
can be activated for rest of the quotations.

6.3 Purchase order Process

In KHAADI, a purchase order created in following ways:

1. With reference to a (source assigned) approved purchase requisition

2. With reference to an approved RFQ
3. Through direct user input (without reference to any document)
4. With reference to a valid Contract.

Purchaser decides the nature and type of procurement i.e. local, imports etc. In few cases, the
decision of whether to procure non-stock (consumable or asset) or subcontract is also taken at the
time of PO creation. For this purpose, suitable ‘Item category’ and ‘account assignments’ are
selected in PO screen. At the time of PO creation, date-wise, quantity-wise delivery schedule can be
maintained.

All purchase orders created in KHAADI is subject to system-based approvals. A PO can only be
printed / transmitted to supplier if it is approved. Workflow will be triggered and email will be sent
to the concerned user for PO approval. After approval, an email will be sent to the relevant persons
for further processing.

46
Any post approval changes to PO that affect release specific fields (e.g. quantity, price etc.), will
result in re-initiation of approval process. For imports PO, LC shipment related data would be
updated in PO. For imports, goods are usually received only after full payment is made to obtain
proper documentation from the bank for custom clearance.

6.3.1 PO document type

In KHAADI, additional document types will be required based upon type of purchase. This rational
is for better reporting and authorization control. All document types will be copied from SAP
standard document type ‘NB’. Following PO types have been identified so far: 


6.4 Sub-Contracting Process

The subcontracting requirement in KHAADI may be determined in following ways:

1. Manually created PR by system user
2. By purchaser at the time of PO creation

A subcontracting requirement is indicated by a special item category ‘L’ in purchasing document. In

purchasing documents, the components must be specified in the document manually. The materials
required by the subcontracting vendor are issued from the company’s own stocks. However, these
are considered as the part of special stock (at vendor premises).

After subcontractor completes the job, item will be received. At the time of receiving of the desired
material, the materials already provided to the vendor are posted as consumed, automatically by
the system.

The cost of incoming materials becomes equal to the service charges plus the cost of materials
consumed during the process.

47
6.5 Inventory Management

6.5.1 Goods Receiving Process

As a delivery to stores is made, the store in-charge shall identify the source of this delivery. In case
of a delivery against PO, material delivered by vendor, the PO number would be traced first. In case
of inbound delivery document, delivery note would be traced.

Good receipts for semi- finished and finished material after production process are done using
movement type, which increases the stock. For Non-valuated stock material, at the time of goods
receipt, the value will be charged to cost Centre / internal order. The quantity, however, will be
taken into inventory management at zero value.

For Consumable materials, the goods are considered consumed at the time of GR posting and no
storage location level stock is updated. For imports PO, user will insert LC and shipment data in PO
manually. All invoices can be verified in the system only after good receipt for local. In Local, goods
can be received through advance payment or invoices can be received after good receipt. For
imports, invoices can be settled before GR & after GR. For imports, goods are usually received only

48
after full payment is made to obtain proper documentation from the bank for custom clearance.
Inbound Delivery document will be created before Good receipts.
6.5.2 Goods Issuance Process
In KHAADI, the goods issuance from storage locations would cater to following scenarios:
1. For Production operations, Consumption will be done with reference to Production Order.
2. For sales delivery of finished goods – against sales order
3. Materials / components to vendor for subcontracting – Transfer to special stock (Vendor
stock)

In case of non-availability of materials in the stocks, a requirement can be triggered; this is realized
in next MRP run. Creating a purchase requisition directly can also cater an ad-hoc purchase
requirement. Goods can also be issued against reservation, which ensures that a material is
available when required.

6.6 Batch Management

KHAADI use Batch Management for following scenarios:
1. Yarn, Fabric and Finished good etc because of variant configuration. Batch Characteristics
will be maintained for different specification and quality of material.
2. Batch Characteristics for Batch Management will be finalized in realization phase.

49
7. Financial Accounting (FI)

This section outlines the master data structures, business processes and related configuration
parameters required for the Financial Accounting module. However, Financial Accounting modules
are also heavily involved in other business process designs and how they post into the financial and
controlling. These issues are covered in the relevant sections in Controlling, Inventory
Management, Purchasing, Production Planning and etc.

7.1 ORGANIZATION STRUCTURE

Financial Accounting Organizational View

KHAADI GROUP Organization Structure

Operating Concern
(1000)

Profit Center
Hierarchy Chart of
Depreciation
Controlling Area (1000)
(1000)
Cost Center
Hierarchy Operating Chart of
Accounts
(1000)

Khaadi
Unibrands (Pvt) Ltd
Manufacturing
2000
1000

Operating Concern
Operating concern is an organizational unit in accounting which structures an enterprise from the
Profitability Analysis point of view. Profitability Analysis for various dimensions (market segments)
like Region-wise, Customer wise, Product wise etc. is performed within the Operating Concern.

The Operating Concern 1000 will be defined for KHAADI GROUP.

Controlling Area
Controlling area denotes the internal accounting operations of an organization within CO. They
represent closed units that are used to calculate costs. Internal allocations carried out will relate
solely to objects that belong to the same controlling area.

A controlling area 1000 will be defined for KHAADI GROUP.

50
Company Code
A company code is the smallest organizational unit for which a complete self-contained set of
accounts can be drawn up for the purposes of external reporting. The following company codes will
be defined for Khaadi.

1000 – Khaadi (Manufacturing) ; 2000 – Unibrands (Pvt) Ltd

Chart of Accounts (Operating Chart of Accounts)

Systematic classification of financial statement items, which enables preparation of financial
statements. The classification is based on the external reporting requirements. The operating chart
of accounts contains the G/L accounts that are used for posting in the company code during daily
activities. Financial Accounting and Controlling both use this chart of accounts. Operating chart of
accounts is assigned to a company code.

Operating Chart of accounts 1000 will be used for KHAADI GROUP.

7.2 FUNDS MANAGEMENT

The functions in this component supports in creating the budgets. The tasks of Funds
Management are to budget all revenues and expenditures for individual responsibility
areas (Budgetary Unit) and to book Commitments against the budgeted amount, monitor
future funds movements in light of the budget available, and prevent budget overruns.
Organization can adapt the budget to changes in conditions by entering releases,
supplements, returns, and transfers.

A Purchasing Organization has been created for the Company Code .The Purchase
Functionality is integrated with Budget Management and Commitment Accounting.

With refer to Khaadi Group, once the Purchase Order is entered the Budget Fund
Availability check is undertaken by the system and if there are insufficient Budget Fund
available; the Purchase Order will be rejected and will not be recorded in the system till the
time Budget is updated or further Budget is released.

FI.FM.Organizational Structure

Controlling Area
(1000)

KHAADI
Unibrands (Pvt) Ltd
(Manufacturing)
2000
1000

FM Area
(1000)
51
KHAADI GROUP have one Fund Management Area, using the four-characters “1000”, have the text
name “KHAADI GROUP Funds Management Area” and is assigned “PKR” as the currency. The FM
Area 1000 is linked to the Controlling Area 1000 & Company Code 1000.
All other organizational units, such as the plant and the Purchasing Organization in Materials
Management are linked to Funds Management via the Company Code.

7.3 ACCOUNT RECEIVABLE

The Accounts Receivable application component records and administers accounting data of all
customers. It is also an integral part of sales management. All postings in Accounts Receivable are
also recorded directly in the General Ledger. Different G/L accounts are updated depending on the
transaction involved (for example, receivables and down payments). The system contains a range of
tools that you can use to monitor open items, such as account analyses, due date lists and account
statements.

7.3.1 Outgoing Invoices Processing (Non-Sales Order)

This is a process where non-sales order invoices are recorded directly in FI. Non-Sales Order
invoices will be created to record transactions directly sent to the customers.

TB-FI-AR-002 Outgoing Invoice Processing (Non-Sales Order)

1
Wastage sale,
Factory

Start 2
sale of fixed
Park the invoice in
asset, etc.
the system
Dr- Cus
Cr- Sales

No
Finance Department

3
Invoice verified

5
Yes 4 Send invoice to End
Process posting of customer
Invoice
DR- Cus
CR- Sales

 Fixed asset or wastage is sold to the customer without reference to a sales order.
 The sales invoice is parked in the system at factory for verification.
 After verification, the finance department will post the invoice in SAP.

52
7.4 ACCOUNTS PAYABLE
The Accounts Payable application component records and administers accounting data for all
vendors. It is also an integral part of purchase management. Outgoing payments and invoices are
managed according to vendors.

Payables are paid with the payment program. Outstanding payables are settled by the payment
program.

Postings made in Accounts Payable are simultaneously recorded in the General Ledger where
different G/L accounts are updated based on the transaction involved (e.g. payables and down
payments etc.). The system contains due date forecasts and other standard reports that can be used
to monitor open items.

7.4.1 Incoming Invoice Processing (Non-Purchase Order)

TB-FI-AP-002 Incoming Invoice Processing (Non-Purchase Order)

Start

2 11
Concern Department

1 7
Attach supporting Edit / Correct
Receive Invoice Receive approved
documents to document,
from Vendor Invoice
Invoice Vendor supporting docs
Vendor’s Supporting
Invoice
Invoice documents
approved

6
Approve the
YES
Invoice for
3 payment
Verify the Invoice 4
against supporting Invoice verified
5
documents
Stamp “VOID” &
return to vendor
NO for correction

10 End
Return invoice to
NO
8 relevant
Check invoice against department
9
authority limit, as well
Invoice verified
as supporting
documents 12 Invoice
Finance Department

Enter the invoice in parked

the system with tax
YES codes

YES

18
19 20
17 Verify against YES
13 Post Invoice Posted
Process posting of duplicate invoice
Verify parked Invoice Invoice
14
against clerical
Invoice verified DR- Exp
accuracy, supporting
CR- Vendor
documents 21
16 NO
Return invoice Error
15
for correction
NO Park invoice Error

This is a process where non-purchase order invoices are recorded directly in FI. Non-Purchase
Order invoices will be created to record transactions directly received from the vendors.

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Non-purchase order incoming invoice processing covers

 Invoice received from vendor

 Debit note received from vendor (Credit note created for vendor)
 Credit note received from vendor (Debit note created for vendor)
Vendor’s Invoice is received in concerned department
Supporting documents are attached to invoice
Invoice along with supporting documents are verified
If invoice is not verified successfully it is stamped VOID
Invoice is sennt checks the invoice against authority limit and supporting documents
Invoice is approved by head of the department
Once invoice is verified, it is entered and parked in SAP system with applicable tax codes
Parked invoice is verified against clerical accuracy, supporting documents, etc.
If invoice is verified after parking, then it is verified against duplicate invoice
After successful verification invoice is posted into system.

7.4.2 Outgoing Payments and Cheque Printing

TB-FI-AP-004 Outgoing Payments & Cheque Printing

2
Mark Invoices for
1
Start payments along
Generate details of
with bank
due Invoices /
Vendor Aging identification
advances Payment
Report proposal
Finance Department

3(a)
Receive hard copy
of verified posted
5
invoices (PO) 4 End
Print cheque and
Post payment
cheque register also
voucher
Payment document updated
3(b) DR- Vendor
CR- w/holding tax Cheque
Receive hard copy
of verified posted CR- Bank (net amount)
invoices (Non PO) DR/CR Exchange gain/loss

KHAADI GROUP will make payments based on the following processes:

Accounts department will generate and review the list of all due invoices pertaining to vendors.
After Approval, Accounting personnel will pick the selected invoices for payment Payment will be
executed in SAP and cheques will be printed automatically. To record advance payment, security

54
deposits etc. special GL indicator will be used. Payment will be executed in SAP and cheques will be
printed or prepared automatically / manually (hand written).
In case of Import purchases, gain and loss will be recorded automatically in local
currency;Exchange rate difference between invoice and payment document. Aging will be
determined on the basis of baseline date entered at the time of invoice or defaulted from the
payment terms. (baseline date will be receiving date when invoice is received by default, however it
can be entered manually depending on terms & conditions of purchase order)

8. Controlling (CO)

Overview
Controlling (CO) offers information to decision makers for planning, measuring and
monitoring enterprise's operations and performance. It represents the internal
accounting view of an organization.
All data relevant to cost and revenue flows
from various sources such as Financial Accounting (FI), Materials Management
(MM), Production Planning (PP), Sales and Distribution (SD), Human Capital
Management (HCM) and Plant Maintenance (PM) modules. The cost and revenue
flows will update FI and simultaneously create equivalent postings into CO.
As part of this process, the system assigns the costs and revenues to different CO
account assignment objects like cost centers, orders, or profitability segments. The
relevant accounts in FI are managed in CO as cost elements or revenue elements.

8.1 Khaadi Business Process

In khaadi Product cost planning process includes executing semi-finished and

finished material Cost Estimates and their Release to update Standard Price in
material master. KHAADI use Product Cost by Order functionality;
Process/production Orders are used as Cost Objects at KHAADI which mean that all
planned and actual costs are collected at order level. Material Costs are directly
assigned at cost objects; Indirect Costs are assigned to production order using
Internal Activity Allocation.

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8.1.1 Standard Cost is calculated in the following way:

 Standard costing is calculated at the beginning of the year / semi annually/ quarterly /

monthly (as decided). . 

 Standard costing is run for semi-finished products and finished products. (Price

determination) 

 Necessary master data for standard costing are:
1) Material master data (all of the necessary views and fields : accounting & costing
views and price determination strategy should be S : standard) 

2) BOM 

3) Routing 

4) Work center – cost center – activity type relations 

5) Basic formula of standard costing: Material cost = material usage quantity in BOM *
raw material prices, Labor, FOH and other cost = standard production times in the
Routing master data * 
activity unit prices 

 Work centers – cost centers assignment and activity type assignment is important. This

information is the base of standard costing. 

 Standard costing run is calculated for the next period/year. Costing result is analyzed and

checked. 

 Costing result is marked. The future price field is updated when user will mark the

standard costing results for the next period. 

 Costing result is released at the first day of the month/year. All the stock accounts are

valuated with the new standard costs. Variance accounts are updated (variance =
(standard cost of the new month/year – standard cost of the previous month/year) * stock
quantity) and the standard costing results are updated in the current period price fields. 

 Stock accounts are revaluated in PKR i.e. local currency of the company. 

 Costing variants are configured according to the costing strategies and BBP decision. 


8.2 Product Costing Planning (Khaadi)

56
Process Description

 Material cost estimate for finished and semi finished material is executed at the
start of period.
 Bill of material (BOM), resource (work center) and Routing master data is
maintained as per 
production planning (PP) processes.

 Raw/Packing material prices are maintained as per material management (MM)
processes. 

 Finance department user executes standard cost estimate of desired material(s) in
SAP 
system and reviews the accuracy of the estimated standard cost. Standard
cost includes 
material prices and activity rates.
 Finance department user release the standard cost estimate to update the
estimated 
standard cost in material master. 


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 Conclusion

The ERP system which has been mostly adopted in the KHAADI is SAP. All of the KHAADI

have adopted different modules of SAP, as par their requirements. The need of ERP is very

important for the efficient management of data. Data is being efficiently managed and

controlled with the help of ERP. Efficient data management has resulted in managing the

operations and business processes. Plus efficient data management has helped in flexibility,

easy reporting and quick identification of the problems.

ERP has enabled the KHAADI to integrate their global business operations. Their global

business operations are now managed from only one place. They have managed to help in

identification of the global problems inefficient manner and quickly identification of the

issues. Siemens has managed to gain the speed and agility in the operations. Plus

optimization is gained in the corporate resources and assets. Lastly, it is become enabled to

get high level of the services and enhanced satisfaction of the customers.

The reporting system of the SAP has helped KHAADI in the numbers of ways. It controls the

operations in efficient manner, management and reporting in effective manner, scheduling

of the duties and the work for the rosters for the fluctuation, staffing the employees for

managing workloads, issuance of the receipt returns and carrying out the performance

reconciliation.

The record keeping system of the KHAADI has also improved due to the enterprise

resource planning. They have become more accurate in their management of records.

Reports can be easily generated from the system. In addition, flexible, fast and integrated

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business processes have been obtained with the help of SAP KHAADI has managed to get

efficient data management. Efficiency has been reported in operations and processes of

business with oracle. Now marketing and financial activities have become more effective.

Financial controls, inventory management and logistic operations are quite accurate due to

oracle ERP. The KHAADI Data has become more efficient in terms of accuracy, and

flexibility.

Some of the major modules of SAP includes: Accounts Receivables, Purchases Ordering

Process, Accounts Payable, Inventory Management, Payments & Receipts Process, Petty

Cash System, Reconciliations, Sales Ordering Process, Claims against schemes, Pricing with

schemes, Calculation of Revenue / Detention / Demurrage, Goods Return Procedures,

Variant Analyses, Preparing Monthly Profit & Loss Accounts, HRIS, Production and

planning, Inventory, Cost and Budgeting, Sales, Finance and Marketing, SAP logistics, SAP

Exports, SAP Imports, SAP-FI Module, Store Scheduling module, TimeTrax Attendance

Management Module, integrated modules, financial modules.

ERP system is too much important to be implemented in the company. Global processing is

now being possible with the new ERP system implemented in KHAADI. KHAADI have also

managed to have efficient monitoring of the stocks, controlling of the operations in the

efficient manner, management and reporting in effective manner, scheduling of the duties

and the work for the rosters for the fluctuation, staffing the employees for managing

workloads, issuance of the receipt returns and carrying out the performance reconciliation.

It is being concluded that ERP system has helped KHAADI in many ways. They have reaped

out many benefits from their implemented system. By considering the benefits they are

59
also seeking improvements in their current system. This has enabled the customers to have

better services and products from the KHAADI. More technology oriented products are

presented due to advance technological implementation in the supply chain system.

Recommendations:

It is advised to the KHAADI that they must consider for having implementation of the ERP

for the global units, but they must not centralize their operations. Centralization has many

drawbacks, plus centralization will make more complex ERP. ERP should be maintained

and kept different for all of the business units, placed in the different countries. Also,

different countries have different structure, so it is advised that ERP must be designed

according to their needs.

It is advised to the management of the KHAADI , that

They must not only rely their operations over VMS. They should have more modules

implemented. Plus it is advised given to the Pakistan Beverages that they must also

consider training their own employees for managing the ERP rather than hiring the third

party. This will enhance the performance and efficiency of the company.

They must also do not go for globalized system. Globalization of the system means to have

centralized data keeping, which is very complex. They should have efficient management of

the data with simple structure.

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They must make their operations efficient by maintaining efficient management of their

software. There are still lacking in the system which must be improved with the passage of

time.

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