What is ERP?

Enterprise Resource Planning A collection of software systems that help to manage business processes for an entire organization Designed to integrate all information processing support for an entire organization ERP is a process of managing all resources and their use in the entire enterprise in a coordinated manner

What makes ERP different ..

Integrated modules Common definitions Common database Update one module, automatically updates others ERP systems reflect a specific way of doing business Must look at your value chains, rather than functions

Benefits of ERP ..
Common set of data Help in integrating applications for decision making and planning Allow departments to talk to each other Easy to integrate by using processed built into ERP software A way to force BPR (reengineering)

Evolution of ERP
In the earlier days of Manufacturing there was no concept of planning in advance.

Independent Inventory Model (1950-1960) Master Production Schedule (MPS) Bill of Material (BoM) Inventory Record (IR)

This approach was evolved based on the observation that the demand for items can be calculated from the demand of the assemblies/ Products where the items are used.

Master Production Schedule (MPS)

A Master Production Schedule (MPS) is a plan for production, staffing, inventory, etc. It is usually linked to manufacturing where the plan indicates when and how much of each product will be demanded. This plan quantifies significant processes, parts, and other resources in order to optimize production, to identify bottlenecks, and to anticipate needs and completed goods.

Master Production Plan (MPS)

An example of a master production schedule for "product A".

Independent Demand Demand Management Monthly Demand for Product A Working Days in Month MPS Daily Demand for Product A 12/7 4000 23 174 12/8 4000 23 174 12/9 4000 23 174 12/10 4000 23 174 12/11 4000 23 174

Bill of Material

The Refined BOM used to have the following major information: Material requirements for unit of Main item. Name of the component item Quantity of component item Any scrap factor that must be taken in to account while calculating the material requirement. Expiry information: The date up to which the design is valid or used by the manufacturer

In 1960s the BOM approach soon became the main input for Inventory Control. For many years, Inventory control was thought as sufficient in manufacturing planning and execution.

Bill-of-Material Product Structure Tree

Bill of Material Dependent Demand

Material Requirement Planning (MRP)

So the long time taken for planning and making the item was not at all an issue. However with time, the situation was gradually changing and very soon the industry realized that the process of making items for fulfilling an order was taking long time and in that way they cannot meet the demand. It was also experienced that there was repetitive effort while planning for materials, other resources and for ways to make the items. Then onwards the Manufacturing Planning systems went through progressive refinement in the last 5 decades. In 1970s the concept arrived to a complete shape and was known as Material requirement planning. This Planning is popularly known as MRP. A refined MRP briefly takes the demand, important item related information ( such as Ordering rules, safety stock , Inventory information ), Bill of Material ,routing and existing Shop floor schedule as inputs. Based on the demand and other supporting information MRP MRP = Independent Inventory Model + Capacity Planning Calculates the requirements for each component item that is required to make the order quantity of end item

Calculates the time taken to make the order quantity of the end item. Calculates the needed hours of Man, tools and Machines for making the Order

MRP Benefits
Increased customer satisfaction due to meeting delivery schedules Faster response to market changes Improved labor & equipment utilization Better inventory planning & scheduling Reduced inventory levels without reduced customer service

MRP and The Production Planning Process

MRP: Material Requirements Planning MRP: (From the 60's& 70s) includes only Material Planning Projections Based on Bill of Material Explosions

Typical Functions: Fundamental Process Questions: Bills of Material Inventory Management Work Order Management Shop Floor Scheduling Production Activity Control Material Shortage Management 1. What do you want to make? 2. What materials does it take? 3. What materials do you have? 4. What materials do you need to get?

Problems in MRP
The major problem with MRP systems is the integrity of the data. If there are any errors in the inventory data, the bill of materials (commonly referred to as 'BOM') data, or the master production schedule, then the outputted data will also be incorrect (colloquially, "GIGO": Garbage In, Garbage Out).

Extensions of MRP
Closed loop MRP Gives feedback from execution function to planning function. Closed loop MRP to provide the ability to translate the operating plan expressed in manufacturing terms such as units and kilograms into financial terms rupees. MRP II - Material Resource Planning Enterprise Resource Planning (ERP) Extended ERP

Manufacturing Resource Planning (MRPII)

Major identification of MRP II is through the integrated planning involving all possible functions in an Industry, which need not always be a Manufacturing Industry.

In addition to exploiting all the features of earlier planning versions such as traditional Inventory control and, MRP , MRP II focused on ensuring the integration between various functions such as Planning, Engineering design, Production , Purchase, Sales, Marketing, Finance, and Human resources. The seamless integration that was the main feature of MRPII ensured that the planning was more meaningful with more transparency to all the stakeholders of the business.

MRPII: Manufacturing Resource Planning MRPII (From the 80's& 90s) includes ALL Manufacturing Resources for "What If" Pro-Active Process Simulations

Typical Functions: Financial Modules Business Plan Resource Planning Production Plan Sales and Operations Plan EDI and Customer Orders Master Production Schedule Rough-Cut Capacity Planning Detailed Capacity Planning Product Costing Modules Engineering Change Management MRP: Material Requirements Planning Fundamental Process Questions: 1. What do you want to make? 2. What materials does it take? 3. What materials do you have? 4. What materials do you need to get? 5. What constraints must be met now or in the future?

Enterprise Resource Planning (ERP)

APICS (American Production & Inventory Control Society) defined ERP as an accountingoriented information system for identifying and planning the enterprise wide resources needed to take, make, ship, and account for customer orders. An ERP system differs from the typical MRP II system in technical requirements such as graphical user interface, relational database, use of fourthgeneration language, and computeraided software engineering tools in development, client/server architecture, and opensystem portability.

ERP: Enterprise Resource Planning ERP (From the 80's& 90s) includes ALL Business Management Systems, Philosophies and Performance Evaluation at All Levels

Typical Functions: Financial Planning Simulations Business Planning Simulations Sales/Marketing Planning Simulations Distribution Requirements Planning Resource Management Simulations Production Management Simulations Supply Chain Management Simulations Continual Improvement Strategies R&D Management Simulations MRPII: Manufacturing Resource Planning

Fundamental Process Questions: 1. What do you want to make? 2. What materials does it take? 3. What materials do you have? 4. What materials do you need to get? 5. What constraints must be met now or in the future? 6.How will performance be planned, simulated, measured, and improved?

Extended ERP
Major factors that contributed the evolution of Extended ERP are :

1. Requirement to focus on the core strength and grow family of partners that work together to deliver the end product and share directly or indirectly the revenue and competitive advantage.

2. A trend that forced to adopt what is called Mass customizations. Customers expect a unique combination of features from a product and at the same time do not want to wait for the long production and delivery cycles. This situation led to Mass customization and soon became mandatory for the vendors. The Mass customization principles were even applied to financial services on certain areas such as Instant approval of loan, instant opening of account etc. Similarly industries such as Automotives devised mechanisms to deliver the vehicles in days to the customer

3. Trend to avoid interaction with systems for long and expect the system to have enough intelligence to perform most of the work. If there are certain rules followed while scheduling the machine and man resources, why cant you expect the System to follow the same and generate the best schedule? 4. Urge for Work flow based applications. Even while refining the processes in a company through techniques such as Business Process reengineering, the main focus for improvement was on logistic activities and the indirect functions such as administrative functions were not focused heavily for improvement in the earlier times. Once the logistic processes were matured enough the focus shifted to improving the administrative processes. 5. Use of the Internet rapidly increased in the mid 1990s. People quickly became Internet literate and Internet became part of life for them. Users liked the Web Browser. Using web browser was simple, and over time, only two versions of the browser (only one version that is, Microsoft Internet Explorer) had the majority of market share. The demand for the business systems to utilize these browsers started to grow and continues to this day. Manufacturing Industry, ever under competitive pressure recognized the cost reduction possibilities of using the Internet. The possibility of cost effective Electronic Data Interchange (EDI) seemed possible. Visionaries saw the possibility of speeding up the businessto business (aka B2B) buying and selling processes and reducing the cost of each business transaction. The Internet made SupplyChain Management to be simpler. Those who wanted to grab the market early started making applications compatible to Internet and instrumental in making extended ERPs.

Enterprise Resource Planning (ERP)

 ERP modules include Basic MRP Finance Human resources Supply chain management (SCM) Customer relationship management (CRM)

ERP and MRP

 ERP can be highly customized to meet specific business requirements Enterprise application integration software (EAI) allows ERP systems to be integrated with Warehouse management Logistics Electronic catalogs Quality management

 ERP systems have the potential to Reduce transaction costs Increase the speed and accuracy of information Facilitates a strategic emphasis on JIT systems and integration

Advantages of ERP Systems

1. Provides integration of the supply chain, production, and administration 2. Creates commonality of databases 3. Can incorporate improved best processes 4. Increases communication and collaboration between business units and sites 5. Has an off-the-shelf software database 6. May provide a strategic advantage

Disadvantages of ERP Systems

1. Is very expensive to purchase and even more so to customize 2. Implementation may require major changes in the company and its processes 3. Is so complex that many companies cannot adjust to it 4. Involves an ongoing, possibly never completed, process for implementation 5. Expertise is limited with ongoing staffing problems

ERP Vendors by Sector

ERP solutions are such a specialized field and the necessity of domain expertise is so critical that solutions and their providers can be easily broken down by sector. Each sector has its own top 10 list. Of course, many of the players are common to all domains SAP, Oracle and Microsoft being the main examples. But variations tend to creep into the Tier II and Tier III end of the market. This study looks at the following major sectors of Industry: distribution industry

Details of the top players in each sector are tabulated below along with their market shares. In some cases, where the market is extremely fragmented at the lower end, it is difficult to identify the last few of the top 10 and a grouping called other captures the rest of the vendor list.

ERP Vendors in the Manufacturing and Distribution Industry

This market is dominated by SAP, Oracle and Microsoft in that order and together they command a 55% market share. A number of Tier II vendors also have considerable market share. The lower end of the market is very fragmented with 26% going to a large number of vendors each of whom has less than 1% market share. Here is what the list looks like - (All figures are in percentages in this and subsequent tables).

Transport, Communication, Energy, Sanitary Services

In this sector, the top 3 remain unchanged but as the table below will show; their market share is increased by nearly 20%. As a result, SAP, Oracle and Microsoft cover nearly 73% of the entire market in this domain. The remaining vendors share about 11% between themselves and a much smaller proportion goes to the others group. The table of relative standings in this section is as shown below.

Service Sector

The trend of the big three maintaining their dominance continues unchanged. The lower end of the market is more fragmented and only seven companies that have a market share of 1% or more can be identified. The position of the major players in this space is shown in the table below.

Retail Sector
In the retail sector the dominance of SAP, Oracle and Microsoft continues. Microsoft improves its position in this sector, coming out even with Oracle. In Tier III service providers, we find new entrants in the list with small vendors taking up nearly 11% of the market space. The table below shows the relative positions in this domain.

With the above background, a final list of the top ten players in the ERP segment is drawn up. This list takes into account the market share of each player in various market segments. Where market shares add to the same value, a vendor who has presence in larger numbers of domains is ranked higher. With this ranking methodology, the final top ten list is produced below.

Future Directions In ERP

1. 2. 3. 4. 5. 6. Cloud Computing Web-based ERP Mobile applications Package form New Markets New channels

1. Cloud Computing
Cloud computing is a technology that uses the internet and central remote servers to maintain data and applications. Cloud computing uses a shared data-centre from which you pick all the ERP software you want. You log in, run your business and only pay for what you use. This way software becomes a service. A very interesting service for Small and Medium enterprises, because now you can also use the best ERP software via the cloud ERP Cloud Computing ERP cloud computing is the most economical way to manage enterprise solution based IT services. No wonder it is gaining more acceptance and popularity day by day.

2. Web Based ERP

Web-based ERP simplifies back-office process automation for mid-sized and growing business. It provides real-time information about finance, order management, purchase, inventory, employee management, e-commerce and much more.

3. Mobile Applications
Todays ERP systems are designed to push information to you, as opposed to you sifting through mountains of reports to find what you need. For example, a CEO or CFO can have key performance indicators (KPIs) on their iPad, Android, iPhone or other mobile phone.

4. Package form
Now more focus is being made on the package form of softwares rather than providing separate data base, ERP and a separate CRM module to making the software in a complete package.

5. New Market
As larger enterprises become saturated with new-generation client/server ERP systems, vendors are being forced to find new markets for their product suites in order to grow.

6. New Channels
As all the vendors being forced to market their product in the world of small business, they made their software products more affordable by lowering the prices for each module and by ramping up the total costs by basing price on user licenses

Faster Implementation Methodologies

ERP vendors have thus begun to focus their effort on making the implementation process easier by: Providing more effective tools Better methodologies Creating elite consulting teams

Conclusion
o Enterprise systems are evolving because organizations are changing. o To know what the future of ERP holds, one must look to the changing environment of business and changing business needs. o Systems will evolve to meet the business needs. Based on current trends, these will be increasingly inter- organizational and global. o Global supply chains mean inter-organizational systems that span different cultures and countries. That will bring even greater challenges due to cultural differences, legal issues, and more.