Chapter 9

Process Integration

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 Learning Objectives
1. Define process integration, and explain why this
concept is fundamental to modern business
operations.
2. Explain how the procurement, fulfillment, and IWM
processes interact when a company fills a customer
order for trading goods.
3. Indentify and discuss the various integration points
among the procurement, fulfillment, production, and
warehouse management processes.
4. Analyze the financial and material impacts of the
various steps in the integrated processes.
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 Background
 Thus far the book has covered the following key
processes:
Financial accounting
Procurement
Fulfillment
Production
Inventory and warehouse management
Material planning
Each of these processes has triggers, data, tasks, and
outcomes

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 Background
Chapter 1 introduced the concept of process
integration
Various processes are interdependent
Steps in one process frequently impact steps in other
processes
This chapter approaches the same processes discussed
in the previous chapters but from an integrative
perspective.

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 Integrated Business Processes

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 Background
Production strategies
Make-to-stock
Make-to-order
Procurement strategy
Procure-to-stock
Procure-to-order
Fulfillment strategy
Sell-from-stock

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 Background
Make-to-stock, procure-to-stock, and sell-from-stock
strategies use inventory as a buffer between processes to de-
couple them or make them less dependent on one another.
To illustrate integration among processes, the scenarios will
no longer assume that there is a sufficient inventory of raw
materials for production or of finished goods for fulfillment.
The discussion will focus on the make-to-order and procure-
to-order strategies.

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 Background
Two scenarios are presented
Scenario one - Filling a customer order for trading goods
 Procurement, fulfillment, IWM
Scenario two – Filling a customer order for finished
goods
 Procurement, fulfillment, production, IWM

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Procurement, Fulfillment, and IWM
Processes
Rocky Mountain Bikes (RMB), a GBI customer, has
ordered 800 t-shirts (SHRT1000) from GBI
GBI will ship the t-shirts from its San Diego plant,
which is warehouse management enabled
Assumptions
The San Diego plant has 200 t-shirts in stock valued at a
moving average price of $15.43 each
The Miami plant has 1,500 t-shirts in stock valued at a
moving average price of $15.25 each
GBI can purchase t-shirts from Spy Gear at $14.95 each

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 Procurement, Fulfillment, and IWM
Processes
Assumptions (continued)
RMB has sent GBI a purchase order (PO) for 800 t-shirts
GBI sells t-shirts for $30 each

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 Plant Stock Valuation – Start of the
Process

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 Process Steps
Fulfillment process—initial steps
 Procurement process—initial steps
Procurement process—internal procurement
Procurement process—external procurement
 Warehouse management steps related to procurement
Fulfillment process—shipping
 Warehouse management steps related to fulfillment
 Fulfillment process—concluding steps

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Account Balance - Start of the Process

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Demo 9.1 Review Financials and Inventory
(Plant, Storage Location, and Bin Stock and
Value)
Review financials and inventory (plant, storage
location, and bin stock and value)

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Procurement, Fulfillment, and Warehouse Management Processes

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 Fulfillment Process - Initial Steps
The fulfillment process is triggered by a customer
purchase order.
Fulfillment continues with the next step, which is sales
order processing.

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 Fulfillment Process – Initial Steps

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 Procurement Process – Initial Steps
A shortage of materials creates a requirement for GBI
to purchase trading goods, which triggers the
procurement process.
Two options for procurement:
Internally
Externally

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 Procurement Process – Initial Steps

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Procurement Process – Internal
Procurement
San Diego plant can procure the t-shirts from the
Miami plant
STO processing has several options
Select STO without delivery document
Goods issue
Material impact
Financial impact
Valuation impact
Goods receipt

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Procurement Process – Internal
Procurement

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Material and FI Documents at GI for
STO

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 Plant Stock Valuation at GI for STO

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Account Balances at GI for STO

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Material and FI Documents at GR for
STO

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 Plant Stock Valuation at GR for STO

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Procurement Process – External
Procurement
GBI sends a purchase order for 1,000 t-shirts to Spy Gear.
Followed by:
Goods receipt
Invoice receipt
Payment
Impacts
Material impact
FI impact
Plant stock valuation

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Procurement Process – External
Procurement

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 Material and FI Documents at GR for
PO

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 Plant Stock Valuation at GR for PO

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 Account Balances at GR for PO

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Account Balances after Procurement

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 Warehouse Management Steps Related
to Procurement
San Diego plant is WM enabled
WM steps: TR/TO
No material or FI documents

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WM Steps Related to Procurement

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 Fulfillment Process - Shipping

Create delivery
WM steps for picking
Goods issue
Invoice
Payment

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 Fulfillment Process - Shipping

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 WM Steps Related to Fulfillment

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Fulfillment Process – Concluding Steps

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Material and FI Documents for Delivery

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 Plant Stock Valuation at GI for
Delivery

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Account Balances after GI for Delivery

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 GL Account Balances after Customer
Billing and Payment

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Procurement, Fulfillment, Production,
and IWM Processes
Rocky Mountain Bikes (RMB) has ordered 40 Red Deluxe
Touring Bikes (DXTR3000) from GBI.
Assumptions
The San Diego plant has 10 Red Deluxe Touring Bikes valued
at a standard price of $1,400 each.
The Dallas plant currently does not have any touring bikes in
inventory.
 When it does have these bikes, the standard price is also $1,400.
The Dallas plant has 200 aluminum wheel assemblies that are
needed to produce touring bikes.
 The standard price for these wheel assemblies is $110.

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Procurement, Fulfillment, Production,
and IWM Processes
 Assumptions (continued)
 GBI’s vendor -- Space Bike Composites -- is able to supply all
of the raw materials needed to make touring bikes.
GBI purchases raw materials in lot sizes of 200. It produces
bikes in lot sizes of 50.
RMB has sent GBI a purchase order for 40 Red Deluxe Touring
Bikes.
GBI sells these bikes for $2,800 each.
Bikes are produced in Dallas and shipped to San Diego via STO

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 Process Steps
Fulfillment process—initial steps
Inventory management (STO)—initial steps
 Production process—initial steps
 Procurement process (external)
 Production process—continued
 Inventory management (STO)—continued
 Warehouse management process related to STO
 Fulfillment process—continued
 Warehouse management process related to fulfillment
 Fulfillment process—concluding steps

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 BOM for Touring Bikes

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 Raw Material Cost per Bike

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 Plant Stock Valuation at Start of
Process

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Account Balances – Start of Process

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Procurement, Fulfillment, Production, and
Warehouse Management Processes

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 Fulfillment Process – Initial Steps
This following scenario for the fulfillment process is
very similar to the one that was previously discussed.
RMB’s purchase order triggers the integrated process
and prompts GBI to create a sales order.
The ERP system performs an availability check.

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 Fulfillment Process – Initial Steps

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Inventory Management (STO) Initial
Steps
Availability check results in a deficit.
Bikes are produced in Dallas and must be transferred
to San Diego (via STO)

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Inventory Management – Initial Step

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 Production Process – Initial Steps
Insufficient inventory of bikes in Dallas to meet the
requirements in the STO
Execute the production process
Insufficient raw materials to produce the bikes

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 Production Process – Initial Steps

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 Procurement Process (External)
The requirement for raw materials triggers the
procurement process to acquire these materials.

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 Procurement Process (External)

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 Plant Stock Valuation after External
Procurement

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 Account Balances after External
Procurement

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 Production Process - Continued
GBI has received the raw materials
The production process continues

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 Production Process - Continued

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 Plant Stock Valuation after
Production

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Account Balances after Production

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 Inventory Management - Continued
Bikes are received into the Dallas plant inventory.
GI for STO in Dallas
GR for STO in San Diego

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 Inventory Management - Continued

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 Plant Stock Valuation at GI for STO

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 Account Balances after a Goods Issue
against an STO

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 Plant Stock Valuation at GR for STO

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 Warehouse Management Process Related
to STO
Bikes arrive in the San Diego plant, which is WM
enabled
Complete WM steps related to GR

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 Warehouse Management Steps

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 Fulfillment Process - Continued
The bikes are now in stock in the San Diego plant.
The fulfillment process, which had been interrupted,
can continue.

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 Fulfillment Process - Continued

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 Warehouse Management Process

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Fulfillment Process – Concluding Steps

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 Plant Stock Valuation at GI for SO

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 Account Balances after Fulfillment

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