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    Enterprise Resource Planning: Fundamentals of Design and Implementation
    Enterprise Resource Planning: Fundamentals of Design and Implementation
    Enterprise Resource Planning: Fundamentals of Design and Implementation
    Ebook328 pages2 hours

    Enterprise Resource Planning: Fundamentals of Design and Implementation

    By K. Ganesh, Sanjay Mohapatra, S. P. Anbuudayasankar and P. Sivakumar

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    This book introduces the fundamental principles of understanding business requirements to apply enterprise resource planning (ERP) in order to meet business needs. The book also helps readers understand the usage of ERP for monitoring and controlling business processes, while providing practical oriented solutions to the design and implementation of ERP. Using the provided framework, a business can decide to provide more value at lower cost which increases its competitive advantage. This should be an ideal reference for executives, researchers and consultants in project management of ERP.

    ERP can be considered to be an integrated package of business process. The scope of ERP determines the extent of automation of business process. For example if ERP covers Human Resource (HR) and finance business processes only, then business process related HR and finance are automated. Typically business process that are automated in HR and finance employee entry and exist process, allocation of employee ID, payroll, processing , income tax planning and actual deduction etc. There is seamless flow of employee data and information is available at an effectively faster rate to take appropriate decision.

    As custom demand increases, there is a need to meet the changing scenario with speed and efficiency. While there is a need to increase productivity, there is also a need to reduce cost of operation. The repetitive business processes can be handled effectively by automating them and freeing human resources for meeting other uncertainties. These automations not only should be done for each department, but also should cut across different departments. Thus there is a need for automating business processes at enterprise level. This enterprise level automation started with MRP, then MRP II, ERP and then finally open source ERP have taken centre stage. Out of the standard products available in the market, an organization can chose an ERP product for implementation, depending on the features available and the total cost of ownership (TCO). This comparison helps an organization to choose the product that best suits the needs for the organization. Enterprise Resource Planning: Fundamentals of Design and Implementation highlights these concepts while discusses different good practices to design and implement ERP.

    LanguageEnglish
    PublisherSpringer
    Release dateJun 18, 2014
    ISBN9783319059273
    Enterprise Resource Planning: Fundamentals of Design and Implementation

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      Book preview

      Enterprise Resource Planning - K. Ganesh

      K. Ganesh, Sanjay Mohapatra, S. P. Anbuudayasankar and P. SivakumarManagement for ProfessionalsEnterprise Resource Planning2014Fundamentals of Design and Implementation10.1007/978-3-319-05927-3_1

      © Springer International Publishing Switzerland 2014

      1. ERP as a Business Enabler

      K. Ganesh¹  , Sanjay Mohapatra²  , S. P. Anbuudayasankar³   and P. Sivakumar⁴  

      (1)

      Supply Chain Management–Center of Competence, McKinsey Knowledge Center (McKC) | McKinsey & Company, Inc., Ascendas International Tech Park, TamilNadu, India

      (2)

      Xavier Institute of Management, Bhubaneswar, India

      (3)

      Department of Mechanical Engineering, Amrita School of Engineering, Coimbatore, India

      (4)

      Vickram College of Engineering, Enathi, Sivagangai, India

      K. Ganesh (Corresponding author)

      Email: k.ganesh@mckinsey.com

      Sanjay Mohapatra

      Email: sanjay_mohapatra@yahoo.com

      S. P. Anbuudayasankar

      Email: spanbu@yahoo.com

      P. Sivakumar

      Email: rajasiva2006@gmail.com

      1.1 Introduction

      1.2 Evolution of ERP

      1.2.1 Scope for MRP-I

      1.2.2 MRP-II

      1.3 Need for ERP

      1.4 Overview of ERP

      1.5 Modules of ERP

      1.5.1 Components of Material Management Module

      1.6 ERP Life Cycle

      1.7 How ERP Improves Productivity of Business Processes

      1.8 Benefits of Automation Through ERP

      1.8.1 Collaboration Approach

      1.8.2 Cross Functional Barrier is Broken

      1.8.3 Integration of Island of Automation

      1.8.4 Key Principles for Integration of Islands

      1.9 ERP Products

      1.9.1 SAP

      1.9.2 PeopleSoft

      1.9.3 Oracle

      1.9.4 Microsoft Dynamics

      1.9.5 Comparison of ERP Packages

      1.10 Trend in ERP: Open-Source ERP

      1.10.1 Definition of Open Source

      1.10.2 Advantages of Using Open-Source ERP

      1.10.3 Conclusion

      1.11 MIS and ERP

      1.12 Summary

      1.13 Glossary

      1.14 Review Questions

      1.15 Project Work

      1.16 Case Study

      1.16.1 Background

      1.16.2 Current Situation

      1.16.3 Challenges

      1.16.4 Discussion Points

      1.16.5 Notes that will help in Discussion

      Further Reading

      Abstract

      In order to sustain and grow further, an organization must deal with all sales holders such as employees, stakeholders and the environment. The organization must design an information system that would collect information as well as provide required information to all these stakeholders. Accordingly, business processes must be organized in such a way that these processes use designed information systems to operate efficiently and enhance the overall performance of the organization. The business processes are organized in such a way that they provide value to their stakeholders by a prioritizing strategy that would provide a faster and higher return on investment (ROI). This prioritization ensures focus of these organizations in relation to their corporate objectives. Since resources are limited, efforts are prioritized on certain business processes which would yield tremendous and faster benefits to the stakeholders. To achieve this, information systems are designed across the entire enterprise, which would help in providing information for tracking and monitoring progress of different processes. These enterprise-wide applications (known as enterprise resource planning, ERP) help in assisting in designing, integrating and automating these prioritized information systems.

      Learning Objectives

      To provide an understanding of enterprise systems and their impact on business processes.

      To appreciate critical roles of enterprise resource planning (ERP) in automating business processes and meeting corporate objectives.

      How to integrate ERP with management information system (MIS).

      1.1 Introduction

      In order to sustain and grow further, an organization must deal with all sales holders such as employees, stakeholders and the environment. The organization must design an information system that would collect information as well as provide required information to all these stakeholders. Accordingly, business processes must be organized in such a way that these processes use designed information systems to operate efficiently and enhance the overall performance of the organization. The business processes are organized in such a way that they provide value to their stakeholders by prioritizing a strategy that would provide a faster and higher return on investment (ROI). This prioritization ensures focus of these organizations in relation to their corporate objectives. Since resources are limited, efforts are prioritized on certain business processes which would yield tremendous and faster benefits to the stakeholders. To achieve this, information systems are designed across the entire enterprise, which would help in providing information for tracking and monitoring progress of different processes. These enterprise-wide applications (known as enterprise resource applications, ERPs) help in assisting in designing, integrating and automating these prioritized information systems.

      For example, raising an invoice for customers is a business process that involves a set of activities. This set of activities is different in different organizations. Different activities in this business process can be collecting details of sales, looking up the rate chart, arriving at the value of goods and printing an invoice. In some organizations, these set of activities can be slow and inefficient, whereas in others it can be fast and effective. One of the objectives of ERP is to design an efficient information system by integrating and automating these set of activities to make it faster and transparent. The degree of integration decides simultaneous publication of the information with different stakeholders and helps improve the performance of the organization. This also becomes the source of competitive strength and can be the differentiating factor with respect to its competition. ERPs help organizations to achieve this competitive advantage.

      The ERP can be considered an integrated package of business processes. The scope of the ERP determines the extent of automation of business processes. For example, if the ERP covers human resource (HR) and finance business processes only, then business process-related HR and finance are automated. Typically, business processes that are automated in HR and finance are employee entry and exit processes, allocation of employee ID, payroll, processing, income tax planning, actual deduction, etc. There is a seamless flow of employee data and information available at an effectively faster rate to take appropriate decisions. Figure 1.1 shows a typical framework for ERP application where HR and finance have focus.

      A322737_1_En_1_Fig1_HTML.gif

      Fig. 1.1

      Typical framework for ERP where the scope covers business processes in HR and finance

      1.2 Evolution of ERP

      Integration of information systems started even before ERPs came into being. This form of integration had limited focus; nevertheless, using information systems for tracking and monitoring business processes were central to the existence in manufacturing organizations. Material requirement planning (MRP-I) was practiced in the 1960s and 1970s by many manufacturing organizations. MRP-I was a software which automated production planning and inventory control so that all the business related to manufacturing was completed in a seamless manner. The objectives of this system were as follows:

      1.

      Required input materials are available for production.

      2.

      Required products are made from input material and delivered to the customers.

      3.

      Maintain an optional level of investors.

      4.

      Schedule manufacturing activities to meet delivery schedules for the customer.

      5.

      Schedule purchasing activities to meet manufacturing activities.

      1.2.1 Scope for MRP-I

      Manufacturing industries, in general, deal with invention management all the time. The day-to-day problems lie with customers and suppliers. Customers want the products to be available in a short time irrespective of the cycle time required for producing them. The organization also needs to control both quantity and quality of materials that they get from the suppliers; and these materials should be available at the lowest possible cost. There could be a different combination of problems that the organization would face:

      If quantities purchased were lower, it would lead to a stock-out situation for customers.

      If the wrong quality or wrong input material is purchased, then the quality of the final product will not match that required by the customer.

      If excessive quantities are purchased, it would lead to excess inventory; this means funds are held up in the form of inventory leading to less inventory and consequently less profit.

      These kinds of problems are tackled by MRP-I; thus, MRP- I helps to solve problems like:

      What items are required?

      What is the quantity of each item?

      What is the time frame for availability of these items?

      Problems with MRP-I

      MRP-I was able to satisfy simple manufacturing business processes. In business processes, where bought-in items and sub-assemblies were involved, the situation became complex. In these complex situations, a bill of material needs to be handled effectively to take care of details of required materials, details of components and sub-assemblies to make each product. MRP-I was not able to handle these complex situations effectively. The problems faced with MRP-I are listed as follows:

      1.

      In these bills of material, integrity of data creates a major problem. Any incorrect input in bill of materials inventory data would result in incorrect manufacturing scheduled. In the 1960s, MRP-I was often considered inappropriate, because of incorrect inventory data.

      2.

      Lead time taken to manufacture a product from its component parts needs to be stated explicitly. Any wrong data in this respect will bring out a wrong schedule for production. The assumption here is that in each manufacturing cycle, the lead time remains constant. Thus, any change in external facts would change this lead time and MRP-I was not able to handle these changes.

      3.

      There were manufacturers who had factories at different locations. These locations could be at quite far-off places. For efficient manufacturing, material needs to be transferred from one location to another depending on the cost factor involved in this transfer. MRP-I was not cost-effective in transferring goods from one location to another.

      4.

      Customization was also handled by MRP-I. This meant that dynamic changes in the environment, including in customer needs, could not be handled by MRP-I.

      5.

      MRP-I also never considered the capacity available in the factory. Thus, utilization of capacity could not be factored in while using MRP-I for scheduling.

      All these problems were dealt with in MRP-II.

      1.2.2 MRP-II

      MRP-II came as an improvement of MRP-I in the 1980s. This, as the name suggests, was an extension of MRP-I. Its scope covers manufacturing, scheduling, operational planning and financial planning along with distribution management. Unlike MRP-I, this was not a software alone, but a combination of planning skills, data integrity skills and computing resources. Thus, it gave birth to the concept of managing different departments simultaneously by effectively using resources. ­Figure 1.2 shows how MRP-II is represented.

      A322737_1_En_1_Fig2_HTML.gif

      Fig. 1.2

      MRP-II flow chart

      As Fig. 1.2 indicates, MRP-II integrates strategic planning, tactical planning, shop from operation and market forecasting. For the first time, a concept was born which took care of enterprise-level planning. Unlike MRP-I (which was a software alone), MRP-II changed the perspective of planning and integration of different departments.

      Benefits of MRP-II

      The integration of different aspects of an organization ensured that there was no duplication of data, high data integrity and accuracy in forecasting using customer feedback. The benefits from this integration can be summed up thus:

      An accurate, consistent and effective way to run the organization

      Control and monitor the operation

      Ability to change internal business processes based on change in the market condition

      Ability to incorporate any change based on customer feedback

      Availability of information at a quicker pace (compared to MRP-I) to take faster decisions

      Consistency of information

      Rolling up of information at different levels and departments

      Accuracy of results

      Ability to meet customer demand in terms of delivery schedule, quantity and quality required

      Faster response to changing customer demands

      Better utilization of inventory and other resources leading to higher productivity

      Better relationship with suppliers

      Improve cash and fund management

      Problem with MRP-II

      MRP-II has been successful in manufacturing industries; however, in the pharmaceutical industry or in food industries, specialized functions are needed. For example in pharmaceuticals, chemicals are required to be stored for a certain period of time under proper temperature and humidity. In food industries, food items have a certain shelf life. Hence, in these industries, MRP-II has not been successful. Handicraft and tableware industries also have fewer wages for MRP-II as they do not need a complex planning process.

      Probably, the industries that cannot use MRP-II appropriately are knowledge industries; they use intellect to provide products and services to the customer and are not capital inclined. In these types of industries, support functions such as HR, finance, administration, etc. play vital roles in providing facilities to the employees. Different employee benefits are given to motivate employees, create better conditions and develop brand equity for the organization.

      1.3 Need for ERP

      The early 1990s witnessed a trend where every organization (including in the manufacturing sector) wanted to be productive and develop competitive advantage through cast leadership effectively utilizing resources from the support department. The organizations observed that to meet their corporate objectives, there should be effective utilization of resources not only in the production department but also in support departments. Business processes have to take care of products and services delivered to not only the external customers but also to internal customers. For the first time, the concept of an internal customer was introduced to address seamless information flow between departments. Figure 1.3 derives this concept.

      A322737_1_En_1_Fig3_HTML.gif

      Fig. 1.3

      Sustainable development model

      Figure 1.3 shows that for sustainable development and growth of an organization, the departments have to coexist and operate at the same level of efficiency and productivity. The gap shown has to be filled up so that the entire organization can operate at the same level of efficiency. This level of operation again has to be consistently maintained with accuracy. There has to be a seamless flow of information throughout the organization and a need for applications which can fulfil all these besides meeting the capabilities of MRP-II. At an organizational (also known as enterprise) level, this application would help management take fast and effective decisions. For these types of needs, ERP was born.

      1.4 Overview of ERP

      ERP integrates the business processes of department functions and departments into one unified system. In this integrated system, different components of software and hardware take care of different business processes. The business processes are grouped into different models and different components of ERP are designed in such a way that each software component can take care of independent models. All these models are finally integrated to give the organization unified views. The basic concept behind using this unified system is the usage of the organization or enterprise database. Figure 1.4 explains this unified database.

      A322737_1_En_1_Fig4_HTML.gif

      Fig. 1.4

      ERP: stakeholders’ view

      Each stakeholder is benefited from the information system integration provided by ERP. Organizations choose to implement modules of ERP one by one. Usually, large organizations have the required IT skills in-house and typically go module by module to reduce the risk associated with automation. This also reduces the impact of a disharmony that automation can break in the present business process. An organization with IT skills may choose to implement some modules of an ERP while developing an interface to other stand-alone modules. This is done to reduce the cost of implementation by not purchasing some of the modules from an ERP vendor. In the case where stand-alone modules provide satisfactory results to end users, this approach is preferred. For example, Polaris preferred to implement PeopleSoft Human Resource Management System (HRMS) and financial system and integrate it with the project management tool. Likewise, some may perceive SAP’s manufacturing tool and customer relationship management (CRM) system to be better than PeopleSoft modules. In such cases, the organization can integrate different modules from different vendors and integrate them.

      1.5 Modules of ERP

      ERP as an application consists of different modules. Each module typically takes care of one

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