inroduction to erp

8/2/2019 Inroduction to ERP

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Introduction to ERP

Definition

Enterprise Resource Planning (ERP) is a way to integrate the data and processes of an

organization into one single system. Usually ERP systems will have many components including

hardware and software, in order to achieve integration, most ERP systems use a unified database

to store data for various functions found throughout the organization. ERP is a company-wide

computer software system used to manage and coordinate all the resources, information, and

functions of a business from shared data stores.

Today's ERP systems can cover a wide range of functions and integrate them into one unified

database. For instance, functions such as Human Resources, Supply Chain Management,

Customer Relations Management, Financials, Manufacturing functions and WarehouseManagement functions were all once individual software applications, usually housed with their

own database and network, today, they can all fit under one umbrella - the ERP system.

Evolution of ERP

The history of ERP can be traced back to the 1960s, when the focus of systems was mainly

towards inventory control. Most of the systems software was designed to handle inventory based

in traditional inventory concepts. The 1970s witnessed a shift of focus towards MRP (MaterialRequirement Planning).

This system helped in translating the master production schedule into requirements for individual

units like sub-assemblies, components and other raw material planning and procurement. This

system was involved mainly in planning the raw material requirements.

Then, in 1980s came the concept of MRP-II i.e. the Manufacturing Resource Planning which

involved optimizing the entire plant production process. Though MRP-II, in the beginning was

an extension of MRP to include shop floor and distribution management activities, during later

years, MRP-II was further extended to include areas like Finance, Human Resource,

Engineering, Project Management etc.

This gave birth to ERP (Enterprise Resource Planning) which covered the cross-functional

coordination and integration in support of the production process. The ERP as compared to its

ancestors included the entire range of a companys activities. ERP addresses both system

requirements and technology aspects including client/server distributed architecture, RDBMS,

object oriented programming etc.


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Evaluation Criteria

Some important points to be kept in mind while evaluating ERP software include

1. Functional fit with the Companys business processes.2. Degree of integration between the various components of the ERP system3. Flex ib i l i ty and sca lab i l i ty4 . U s e r F r i e n d l i n e s s5 . E a s e o f i m p l e m e n t a t i o n6. Ability to support multi-site planning and control7. Technology - client/server capabilities, database independence, security8 . Avai lab i l i ty o f r egu la r upgrades9. Amount of customization required10.Local support infrastructure11.Reputation and sustainability of the ERP vendor12.Total costs, including cost of license, training, implementation, maintenance,

customization and hardware requirements.

Features of ERP

1. ERP is a software package that tries to integrate all departments and functions of a singlesystem.

2. Balance the costs (time and money).3. ERP system typically run on a single database and broken up into modules along the line

of departments.4. Essentially ERP is a tool that helps to simplify business processes and also provide

strategic advantage by real-time reporting.

5. Provide up-to-date financial and manufacturing information to the managers.

Benefits of ERP

1. Design engineering (how to best make the product)2.

Order tracking from acceptance through fulfillment

3. The revenue cycle from invoice through cash receipt4. Managing interdependencies of complex Bill of Materials5. Tracking the 3-way match between Purchase orders (what was ordered), Inventory

receipts (what arrived), and costing(what the vendor invoiced)

6. The Accounting for all of these tasks, tracking the Revenue, Cost and Profit on a granularlevel.


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Disadvantages of ERP

Many problems organizations have with ERP systems are due to inadequate investment in

ongoing training for involved personnel, including those implementing and testing changes, as

well as a lack of corporate policy protecting the integrity of the data in the ERP systems and how

it is used.

Limitations of ERP include

1. Personnel turnover; companies can employ new managers lacking education in thecompany's ERP system, proposing changes in business practices that are out of

synchronization with the best utilization of the company's selected ERP.

2.

Customization of the ERP software is limited.3. Re-engineering of business processes to fit the "industry standard" prescribed by the ERP

system may lead to a loss of competitive advantage.

4. ERP systems can be very expensive to install often ranging from 30,000 to 500,000,000for multinational companies.

5. ERP vendors can charge sums of money for annual license renewal that is unrelated tothe size of the company using the ERP or its profitability.

6. ERPs are often seen as too rigid and too difficult to adapt to the specific workflow andbusiness process of some companiesthis is cited as one of the main causes of their

failure.

7. Systems can be difficult to use.8. Systems are too restrictive and do not allow much flexibility in implementation and

usage.

9. The system can suffer from the "weakest link" probleminefficiency in one departmentor at one of the partners may affect other participants.

10. Many of the integrated links need high accuracy in other applications to work effectively.11. Once a system is established, switching costs are very high for any one of the partners.12. Resistance in sharing sensitive internal information between departments can reduce the

effectiveness of the software.

13. There are frequent compatibility problems with the various legacy systems of thepartners.


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ERP Implementation

Implementing ERP systems are extremely complex and take months and even years to

implement. Companies are increasingly implementing ERP software solutions to improve

operations and provide faster customer response to stay competitive.

One of the top reasons ERP implementations fail is because the software doesnt meet basic

industry specific business requirements. However; purchasing an ERP application is only half

the battle. A well designed implementation plan is the key to success.

The following five steps are treated as the key behind successful ERP implementation:

A. Strategic Planning: Project team: Assign a project team with employees from sales, customer service,

accounting, purchasing, operations and senior management. Each team member

should be committed to the success of the project and accountable for specific tasks.

Examine current business processes: Preforming analysis on the current or existingbusiness system so that a proper strategy can be made to resolve the failure.

Set objectives: The objectives should be clearly defined prior to implementing theERP solution. First define the scope of implementation. Ideally, the scope should be

all inclusive. But practically, it is very difficult to implement.

Develop a project plan: The team should develop a project plan which includespreviously defined goals and objectives, timelines, training procedures, as well as

individual team responsibilities.

B. Procedure Review Review software capabilities: Dedicate 3-5 days of intensive review of the

software capabilities for the project team. Train on every aspect of the ERP

software to fully educate the team on capabilities and identify gaps.

Identify manual processes: Evaluate which processes that are manual and shouldbe automated with the ERP system.

C. Data Collection & Clean-Up Convert data: Determine which information should be converted through an

analysis of current data.


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Collect new data: Identify the source documents of the data. Create spreadsheetsto collect and segment the data into logical tables Review all data input. It is very

important that the data is accurate.

Data clean-up: Review and weed out unneeded information to improve the dataand increase the accuracy.

D. Training And Testing Pre-test the database: The project team should practice in the test database to

confirm that all information is accurate and working correctly.

Train the Trainer: It is less costly and very effective to train the trainer. Final Testing: The project team needs to perform a final test on the data and

processes once training is complete and make any needed adjustments. You wont

need to run parallel systems, if you have completed a thorough testing.

E. Evaluation: Develop a structured evaluation plan which ties back to the goals andobjectives that were set in the planning stage. It is important to periodically review the

system's performance.

Factors involved in ERP implementation:

1. Vendor Evaluation Factors Business strength of the vendor R & D investment in the product Resource strength of the vendor Organization for the product development and support

2. Technological Factors Object orientation in development and methodology Client server architecture and its implementation Interface mechanism Hardware-software configuration management

3. Solution Evaluation Factors Ease of use Flexibility Quality in terms of security, reliability, and precision of results


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Future of ERP Applications

The long term goal of ERP is achieving more flexibility in operations. Four crucial elements are

required to achieve flexibility.

1. Components, not modules: Historically, ERP systems have been built frominterdependent modules. In the future, freestanding components will work independently,

capable of integrating seamlessly with each other, with legacy systems, and third-party

solutions. Companies are now outsourcing business functions such as logistics, human

resources, and accounting in order to concentrate on areas that improve competitive

advantage. They need apps that can be pulled apart, recombined, and distributed to match

new outsourcing-based business models.

2. Incremental migration, rather than massive re-engineering: ERP systems havetraditionally taken too long to implement. This must give way to a ready-to-go product

that allows companies to migrate in easy steps, moving steadily from one deliverable toanother, rather than waiting long periods for completion of a total project.

3. Dynamic, rather than static, configuration of ERP systems: Big ERP systems that areconfigured once and for all are no longer acceptable. ERP components must be

dynamically reconfigured to suit changing business needs. No one vendor can presume to

predict accurately and precisely how its customers will work and how their processes will

flow. Technically, users will be able to influence the system functionality and

configuration simply by changing an underlying business logic template. Critical to such

re-configurability is the ability to create dynamic suites of applications out of best-of-

breed components.

4. Management of multiple strategic souring and partnership relationships: Rather thanmerely viewing the flow of processes, future ERP systems will model and monitor

processes affecting the activity of the business, wherever those processes are occurring,

up and down the supply chain. This is especially important in a business-to-business e-

commerce environment.

Marketing of ERP

There are many important streams of research in marketing, two of which are Strategic

Marketing and Customer Behavior. The strategic marketing usually suggests several general

steps to be followed by an organization to secure its long-term survival. These phases can be

abbreviated as follows:

An organization identifies objectives and develops strategies to achieve them An organization implements the identified strategies


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An organization evaluates if it has achieved, what if wanted to achieveIn the first step, an organization, after identification of objectives, examine its potential markets

through customer analysis in order to develop the appropriate marketing strategies. Customer

analysis involves studying customers need, motives, segment etc.

In the second step, marketers implement certain of the strategies that fit well market

circumstances. The second phase is the action phase, which requires carefully crafted policies

and decisions from top management.

The last step involves evaluating the efficiency effectiveness of implemented strategies.

Marketing research focuses on customer behavior.

Integrated Management

A management system that integrates all of your systems and processes into one complete framework,

enabling you to work as a single unit with unified objectives is known as integrated management.

Integrated management provides a clear picture of all aspects of your organization, how they

affect each other and their associated risks. It also means less duplication and makes it easier to

adopt new systems in the future. To successfully achieve integrated management systems

certification, we need to demonstrate that you have one management system that encompasses all

existing management systems standards into one structure.

Key benefits:

1. Encourages risk management2. Gives you a competitive edge3. Attracts investment4. Improves and protects brand reputation5. Raises stakeholder perception and satisfaction

Risk Management

Risk management is a structured approach to managing uncertainly through, risk assessment,

developing strategies to manage it, and moderation of risk using managerial resources.


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The strategies include transferring the risk to another party, avoiding the risk, reducing the

negative effect of the risk, and accepting some or all of the consequences of a particular risk.

Some traditional risk managements are focused on risks restricting from physical or legal causes.

Financial risk management focuses on risks that can be managed using traded financial

instruments.

Objective of risk management is to reduce different risks related to a preselected domain to the

level accepted by society. It may refer to numerous types of threats caused by environment,

technology, humans, or organizations and politics. On the other hand it involves all means

available for humans, or in particular, for a risk management entity.

Supply Chain management (SCM)

Supply chain management is the management of a network of interconnected business involved

in the ultimate provision of products and service packages required by end customers. It is the

design, planning, execution, control, and monitoring of supply chain activities.

It is said that the ultimate goal of any effective supply chain management system is to reduce

inventory. As a solution of successful SCM, sophisticated software systems with web interfaces

are competing with web-based application SCM services for companies who rent their services.

Supply chain management flow can be divided into three main flows:-

1. Product flow: It includes the movement of goods from a supplier to customers, as well asany customer returns or service needs.

2. Information flow: It includes transmitting order and updating the status of delivery.3. Financial flow: It consists of credit terms, payment schedules, and consignment and title

ownership arrangements.

There are two types of SCM software:

1. Planning Application: It uses advanced algorithm to determine the best way to fill anorder.

2. Execution Application: It tracks the physical status of goods, the management materials,and financial information involving all parties.

Plan Source Make Deliver Buy


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Some SCM applications are based on open-data models that support the sharing of data both

inside and outside the enterprises. This shared data may reside in diverse database systems,

or data warehouses, at several different sites and companies. By sharing this data upstream

and downstream, SCM application have the potential to improve the time to market of

products, reduce costs.

There are two types of SCM models push and pull. The consumer need-based business

model is forcing a fundamental shift from a traditional manufacturing push based model

(build to stock) to a pull based model (build to order).

1. Push Model: It involves taking the product directly to the customer via whatevermeans to the customer is aware of the brand at the point of purchase.

In the traditional, push model, merchandise is pushed into customers hand. In the

pull model, customer actually initiates the supply chain (demand driven model)

2. Pull Model: It involves motivating customers to seek out the band in active process(getting the customer to come to you)

Fig: Pull and Push Model

Resource Management

The process of using a companys resources in the most efficient and effective way is called as

resource management. These resources can include tangible resources such as goods and

equipment, financial resources, and labor resources such as staff and employees.

Resource management can include ideas such as making sure one has enough physical resources

for one's business, but not an overabundance so that products won't get used, or making sure that

people are assigned to tasks that will keep them busy and not have too much downtime.

Buy Customer Retailer Retailer Buy Customer

Pull Push

Manufacturer

or service

provider


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Generalized Model of ERP

The figure is assumed to consist of four quadrants:

The circle at its center represents the entities that constitute the central database shared byall functions of the enterprise

The border represents the cross-enterprise functionality that must be shared by allsystems. The most important part of this cross-enterprise border will be known as multi,

representing the capability required by it to compete and succeed globally

a) Multilingual and multi-currencyb) Multi-mode or mixed mode


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Role Vendors

The vendor should supply the product and its documentation as soon as the contract issigned. Only after the software is delivered, can the company develop the training and

testing environment for the implementation team. The vendors are responsible for fixing any problems in the software that the

implementation team encounters.

Another role the vendor has to play is that of the trainer - to provide the initial training forthe company's key users, people who will play lead roles in the implementation of the

system.

The role of the vendor does not end with the training. The vendor also plays an importantproject support function and must exercise quality control with respect to how the

product is implemented.

It is the vendors who understand the finer details and functions of the product and canmake valuable suggestions and improvements that could improve the performance of the

system.

Consultants and Users

Consultants

These are the professional people who develop different methods and techniques to dealwith implementation process and with various problems that will crop up during

installation.

They are expert in area of administration, management and control activities. They have experience of implementation. They very well know how to implement ERP for organization as their own business.

Role of Consultant

They are responsible to implement the project. Demonstrating clear cut idea. Finally tells the change must be made with the decision resulting in responsible for

administration of phases.

Users

The users of ERP systems are workforce of the organization at the all levels, fromworkers, supervisors, mid-level managers to executives.

Users can be classified into:


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a) Those who executes strategic planningb) Those who perform managerial controlc) Those who do operational control

End Users: End users are the final or ultimate users of a system. The end user is theindividual who uses the product after it has been fully developed and marketed. It usually

implies an individual with a relatively low level of computer expertise. The end user has

certain characteristics and attributes which impact the development, design, and

implementation of a MIS.

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