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Chapter 1

Components of ERP
1 Hardware
2 Operating System
3 Data Base System
4 Connectivity
5 Business Processing understanding & mapping
6 Consultants
7 Choice of ERP product to suite your Business

1 Hardware
This consists of Data Base server, Application servers

Data Base servers store all the tranaction data that takes place due
to different business transactions in Finance, Costing, Material,
Sales, Production planning, Plant Maintenance, Quality etc.

We need to ensure that data is correctly transacted into the system.

The data base servers have something which is called CPU, (central
processing system). This energies the system to pick up data and
return data to it’s designated place for easy retrival at later date when
ever needed.

The Data base servers have memory that are installed into the server
to store data. These are available in discs with designated sizes e.g:
9 gb, 81 gb etc. The size od data base is decided by the number of
discs installed in it. Ex: 9 discs of 81 gb would mean that it has a
capacity of 9x81 = 729 gb memory size.

The servers have 2 types of memories.

(a)Hard disc memory
(b)RAM (RANDOM Access Memory.

What we have described earlier in calculation 9x81 gb is called Hard

disc memory
When we say RAM, we mean another memory that is used to ensure
a place where the data drawn from Hard Disc is collected for
manipulation and calculations. After the needful calculation etc is
completed, the final data is returned to the Hard disc to be stored in
appropriate location in Hard disc.

We have examples like the Hard disc capacity is 40 GB and RAM as

2GB. Higher these capacities, the faster the computer can work for

Application Servers is used to host the application software eg:

SAP, PeopleSoft, Oracle, BAAN etc.

These are products that are sold by vendors whose names have
been mentioned in earlier line. These products allows us to conduct
our business through the business system that are written in
software. These softwares addresses all business functions and
related business processes. At one time when ERP started, the Data
Base and Applications were loaded on one system with either
physical separation or logical separation in the Hard Disc as well as
the RAM. This meant that there was only one box that housed both
these systems. Under such circumstances we then had one box with
these 2 systems and another box that was used by the users of the
system. This architecture was then call a 2-Tier system.

As the complications in ERP systems increased along with the huge

transaction volumes, the Applications were loaded on another box.
With arrangement, we now had a separate box for Data Base,
another box for applications and the final box for the users. This
arrangement came to be called 3-Tier system. Box where Data base
was loaded was called Data Base server, where applications was
loaded was called Application server and the box that was used by
end user was called the client.

When internet became integrated with these systems, it brought in

IAS (Internet Application Servers) & ITS (Internet Transaction
server). The system then came to be called 4-Tier system and so on.

You must remember that there is no data that gets stored in

application servers. All data is stored in Data Base server only.
Remember that Application server will have only software programs
that run business processes in each of the business applications
such as Finance, Materials, Plant Maintenance etc.

Client: Client is the machine used by end users. It could be a PC or

Laptop with which the transaction are triggered . These transacts are
nothing but application programs that are pulled from Application
servers and data from the Data base server. On compketion of one
transaction, the application program returns to the application server
and Data goes and gets saved in the data base server.

Till 1993, most of the ERPs were run on the Main Frame computer
systems. These were essentially 2-Tier systems. The Main Frame
systems were not the 4th Generation (4 GL) Language systems.
Hence it was not internet enabled. Further they were also not
platform independent.

What does platform independent mean?

In case we bought IBM systems, then we had to buy the data
base, applications, servers etc all from IBM and hence we could
not use, HP, Compact servers or clients.

Today we have very few Main Frame systems. Instead we have

Client Server Architecture/ Technology. This means that we have
RAM and Hard Disc capabilities at each level e.g, Data Base
server, Application Servers and also the client. Further the Client
Server Architecture is platform independent. We can use any
make of Hardware (computers) as servers. WE CAN USE ANY
combination and further it is Internet empowered (internet based
or Internet enabled)

2 Operating System
This is a software tool that helps to pull out the correct business
processes/ applications for conducting the transaction. Further it
helps to draw out the correct data from the data base system and
after completion of the transaction helps to return the application
processes and data to the designated places in each of the servers.
One must also remember that Operating System also acts like a
police man to regulate the data traffic in the systems. It prioritises
data travel, application programs call, locates and relocates data at
correct places, has the address of all these data that u have saved so
that the same data can be recalled correctly without wasteage of
Examples of Operation systems are: Unix, Linux, Windows NT etc

3 Data Base System:

This system is responsible to store and retrieve data rom the Hard
Disc of the data base system. This data base system is supposed to
stor data, retrieve data, organize data storage in different table, label
the data and attach addresses to each data. With this close
interaction between the Operating system and Data Base systems,
we are able to retrieve and restore data in the Data Base system.
Examples are: Oracle, Informix etc

4 Connectivity:
Here we connect the different office, factories and godowns with the
central servers. This means that we have a centralized Data Base
system and not a distributed Data base system. This means that the
data is captured and recorded in a Real Time & On-Line manner. In
this data & business transactions are captured on-line and in nano
seconds. This will happen only when all locations are centrally

Such connections can be done in 2 ways:

a) Underground fibre optic cables used to connect these
b) VSATs (Very Small Aperture Terminals) are used.

These can be administered in 4 ways:

(i) TDM – Time Division Multiplexing
(ii) TDMA – Time Division Multiple Access
(iii) PAMA – Permanently Assigned Multiple Access
(iv) DAMA – Dynamically Assigned Multiple Access

When we use the Fibre optic cables, the data travels through
these cables and hence the transmission is without any HOOP.
When we use the VSAT, the data is shot in the air as packets.
These data packets reach the assigned satellite of the service
provider and returns to the service providers HUB. Thereafter the
data is once again thrown in the air to the satellite and then
reaches the destination that has been assigned to the data. This is
called a double HOOP system. One can clearly if that the data
travelling through the Fibre optic makes no HOOPs like the ones
made in VSAT. Hence data transmission through Fibre optics is
musch faster than that through the VSAT. Further we will need
much smaller bandwidth to transfer data through the fibre optics.

5 Business Processing understanding & mapping

Whenever we want to uimplement ERP systems, we have to be very
clear on certain aspects:
a) Organization Structure
b) Business processes in each functional areas
We need to list down all details of business processes and functional
areas. This means that we should write down what all business
processes are conducted at which all locations, the frequencies, the
data volunmes, the intervals, the authorization matrix, the reporting
structures, the various types of reports, it’s frequencies, the
distribution lists etc.

In short it means that you do a complete revalidation of what all is

reqd for the organization and what all can be delivered without much
change and problem resolution.

6 Consultants
These are prfessionals who understand the ERP Package that you
have selected to be implemented at your site. Since ERP is a
Business man’s package and not a IT engineer’s package, it will be
best understood by business persons.

It is therefore essential for the customer to ensure that the

consultants that are assigned to implement ERP are having a through
and through knowledge of the customers business. They must have
atleast 4 to 5 years of functional/ domain knowledge and must have
implemented atleast 2 to 3 full cycle implementation experience. It
must also be remembered that the consultants must be good
communicators, mentors and finally good traininers. The reason is
that they must be able to explain the subject matter very clearly and
confidently. They must be bold leaders from front and hence be able
to carry people with them.

Success of all ERP implementations demands that we must have

very good consultants.

7 Choice of ERP product to suite your Business

Different ERP Products like SAP, PeopleSoft, Oracle etc are

available in the market. One has to be very very careful to select the
correct ERP product that will meet ur requrements once
implemented. It is therefore necessary to establish the experience
gained by each ERP vendor in your areas of business and the
available requisite consultants to conduct the ERP implementation.

Important criteria that you need to watch with each ERP vendors are:
a) no of accounts that each of these ERP vendors have in your
business areas
b) annual ERP product sales year on year
c) investment in Research & Development
d) trained and certidfied consultants available with them
e) number of existing implementation partners in your country
f) types of hardware and infrastructures available for help
g) cost per user for each licemse purchased
h) annual maintenance cost as % of license fees
i) support during and post implementation stage
j) ERP vendors partnership witjh the Hardware, Operating
Systems, Networking and communications, Systems
integrators etc.
k) Global connections and connectivities.
Chapter 2

Lolly Pop Diagram

This diagram represents the integration that is available in an ERP


At the centre of this diagram is a big ball. This represents the

Architecture (2-Tier or 3 Tier Hardware system), Operating system,
Data Base system, Connectivity etc
Next u can see all the functional areas connected to this central ball.
This means that all these functional areas are internally integrated
with one another seamlessly.

HR – Human Resources
MM – Materials Mgt
SD – Sales & Distribution
PM – Plant Maintenance
PS – Project Systems
QM – Quality Mgt
FA – Financial Accounting
CO – Controlling
IS – Industry Solutions
OC – Office Communication

HR – Human Resources

Here we handle all the business processes that atke place in HR. We
have Salaries and other related aspects taken care off. We also
address the recruitment processes, selction, appraisals, career
developments, training & development requirements, retrials &
separations, succession plans, job descriptions, job attributes , skills
required and matching with available skills of the concerned
We can also track travel on business & training, guest house or hotel
booking, ticketing and reservations as well.

MM – Materials Mgt

The main functions here are:

a) Procurement
b) Inventory Mgt

c) Procurement
Here we handle all activities that are connected with maintaining the
material supply to the company: either the consumable raw material
or the capital goods.

During conducting this process, we extend functional business

processes like. RFQ (Request for Quotation), Qoutation receipt and
processing, Negotiations, Purchase orders preparation and Vendor
selection, Placing of purchase orders and firming of contracts and
replenishment system.

Pricing and pricing components, values, mode of payment, period of

payment, credit limits setting, penalties and rewards for default or
best performance etc are also settled here.

Each of the above mentioned processes have a different Document

type and also different document numbering system.

Various types of reports are also available to ensure that the

processes get managed well and controlled well in advance

d) Inventory Mgt
Here we have the responsibility to receive materials against the
Purchase orders (GRN), Issue materials to various production orders,
projects etc (GI- Goods issue), Inventory valuation, manage store
spaces, manage shelf lives of the various mteruials, inventory stock
taking at regular intervals as reqd by company.

Inventory mgt will also mean that we issue correct material in correct
reqd quantities so that there is no problem faced during production.

We therefore need to build up a correct Material Master, Vendor

Master, define all these material in material master at each location
where these materuials need to be handled.
We also classify materials in different manner. Examples are: Raw
Material, Semi-Finished, Finish Goods, Consumable, Spares,
Packing materials etc.

Each material type has a separate Number range for each type of

Each business process in the above 2 functional areas are defined

with different document type. Each has a different number range
attached to each one.

SD – Sales & Distribution

Here we bare gearing to orgabnise to reach the markets where our

customers are present. Here essentially we will deal with customers
in the same manner as we deal with the vendors. Customers and
vendors are mirror images of each other.

We also follow the same process in Sales as we did in materials.

Only thing is that today we will sell as against buying as in Material

All above statements made in Materials mgt are equallt valid for
Sales by as a mirror image.

We maintain different number ranges and doc types as mentioned


When we come to defining the finish goods then we must now be

ab;le to attach the finish goods to each of the Sales Organizations so
that these finish goods can be sold from these defined places.

PM – Plant Maintenance

Here we handle the plant maintenance activities at each of the

manufacturing, storage places, offices etc. The plant may refer to the
manufacturing machines, cars, cranes, dumpers , office Air
conditioning, power supply etc.
We track all assets and keep track of when maintenance request was
made. Resolved in which manner and at what costs and after what
lead time etc.

Hence defining and tracking each asset is utmost important

We can get all types of reports

PS – Project Systems

Here we keep track of all types of projects I n terms of work load,

resources in hrs, material consumption, timely completion, mile
stones achievem,ents, delays and overtimes etc.

We can then get staistics on how costly each plant is to us and can
the plan the replacements etc

Project systems can be managed in 2 ways:

i) Only in Finance by use of Jounal entries and with agreed
dates of completion and payaments
ii) by Logistics path. Here we will integrate the following tools
for performance monitoring and control.
iii) The tools used could be MS Project system for laying down
all activituies, their dependencies, time for each actvities,the
emergency actions that may be needed to bring project on
line and also attach payments against deliverables that have
been promised in the beginning.
iv) Monitoring through PERT, CPM methods. This integration
helps to monitor cash flows for project in terms of
procurements and dispersements.

QM – Quality Mgt

Here we need to define the Quality Strategy, Quality Plan and finally
the methods used to administer thr quality at all levels. The different
levels will be for Procurement, Work in Progress and the Finish
There will be different tools and instruments used to evaluate quality.
There will also be defined the various attributes that need to be
measure regulatrly. We will also define the top and bottom limits to
get quality in place in terms of accepting or rejecting the material at
various stages.

It is agreed that we will not be able tpo do 100% inspection of all

attributes and the values as it comes. Hence we will have to resort to
Statistical Quality control system.

This means that we will have to define the number of lots that we will
inspect and also at what intervals. The size of each sample for quality
/ inspection/ control will have to be defined alongwith the appropriate
number of samples to be taken and also the intervals. The choice will
have to be done keeping in mind what is the reliability level that u are
seeking. This means we will inteprete quality of the population from
the observed results of all the combined samples that we have
chosen and also the number of samples and also the interval
between the samples. We can work out these details depending upon
the reluiability levels like 65%, 95%, 99% or 6-sigma.

This will mean that the population will be 65% reliably represented, or
95% or 99% or 6-sigma.

FA – Financial Accounting

Here we track all financial transactions in terms of Accountants

Payables, Accounts Receivable and General Ledger.

All costs, budgets, budgets used, cash flows (inwards and outwards),
financial funding in terms of long term and short term.

The procurement of Asset, depreciation calculation, preparing

Balance sheet and Profit & Loss statements need to be done. We
need to keep track of product costs, product profitability, division
profitability, regional costs and sales etc.

Finally we must remember that finance is fully integrated with all

functional areas. Every material;l receipt of issue is totally integrated
with finance. Hence every transaction triggers a Finance entries in
the background. It is because of this possibility that we can create a
Balance Sheet 0or a Profit and Loss Statements instantaneously any

Asset Management
We also manage Assets in this way. We track every asset for it’s
performance and the value it delivers.

We have Asset under construction, Assets that are bought outright,

Assets retrials and disposition etc.

A Asset register is created and further Assets are aslso categorized

into different catagories and appropriate depreciation % are applied

CO – Controlling

This in normal parlance is called Management Accounting in the

world. SAP calls this Controlling.

Here we talk about the following:

i) Cost Centres : Primary Cost Centres and Secondary
ii) Profit Centre
iii) Product Profitability Analysis
iv) Management Reporting
v) Cost Elements: Primary Cost Element & Secondary Cost
vi) Budgetting
vii) Fund Management

Cost Centres can only accumulate costs. They cannot capture

Revenues or Sales.
Cost Centres are know as WHERE the money is spent.

Cost Elements are known as FOR WHAT the money is spent

IS – Industry Solutions
Here we talk of any special business Functions and Processes that
may have to be added in core SAP functions and business

Examples can be any specific requirements of Oil &Gas industry. In

this case these additions are meant only for Oil &Gas Industry and
nobody else will need this. Similarly, one will develop something for
Defence and Aerospace Industry. These developments for Defence &
Aerospace will not be needed by any one else.

OC – Office Communication
Here we will talk about integrating Office Communications softweare
with basic SAP System.
Examples could be email system, Document management system,
GIS (Geographic Information System,), CAD/ CAM ststem, Animation
systems, FAX, Mobiles, Mobile Commerce system etc.
Chapter 3

Critical success Factors

1 Selection of correct ERP system that meets ur

business needs
2 Correct sizing of Hardware and communication
3 Correct selection of Operating System
4 Correctly sizing the end users. This makes the system
acquisition economical. Every extra SAP Lisence will
cost more. Every extra Bandwidth to transmit data will
also cost more
5 Selecting the correct implementation partners. This
means we must have a partner who has enough back
up in terms of number of consultants with rich and
appropriate knowledge of your business needs and
also SAP product
6 Correct selection of the subject matter experts from the
customers side. This means that we must put pon
ciore team people with rich business knowledge in
their own field. This will help to guide the consultants in
right direction to make correct choice during
configuration. These core team people must also be
polite, intelligent and can absorb SAP Training in short
time. Thety must also be good trainers so that whilst
preparing for GO-LIVE, they can train the end users. In
shport all the core team members must have a
disposition to migrate themselves frpm Business
Specialit to becoming good trainers and Mentors.
7 Top Mgt ownership from both sides: Customers side
as well as the Consulting company side
8 The companty must have a strong Change
Management team. During implementation, many gaps
will surface that will demand that u change ur ways of
working on the ERP system. Change Management is
the key to success. Hence it enjoys great challenge
and importance.
9 Regular feedback seeking and guidance from Top Mgt
is very essential in an all round success of this
10 Post implementation, it will appear that a lot of jobs are
identified as non value added activities and hence
redundant. Today some will be doing this. Tomorrow
when SAP is implemented, these jobs will not exist.
Hence these very people will bcome jobless. One
needs to plan for alternative deployments of these
people. An important activity of Change Management.
This means, unlearn & relearn new skills to adapt to
the changed situation.
Chapter 4

Evolution of ERP in India

Pl refer the Funnel Diagram. Pl note Funnel Diagram must

accompany this answer.
Till 1993/94, we had island systems. Computer systems did exist but
were in very small shape and size. They addressed some simple
applications like inventory mgt, sales accounting, purchase
accounting etc. The softwares and hardwares were sold by the same
company. This means, IBM had it’s own hardware and their softwares
could run on only IBM machines. Hence they were called proprietory
Hence with this limitation, we had manual and computer systems co-
existing together to address business needs.

In some places one had completely manual systems and in some

places semi manual systems.

In 1994, there was presence of SAP, BAAN, PeopleSoft, Oracle in

India. It was very difficult to convince that these system could help
organizations immensely. Only Multinational companies could afford
High costs of procuring these licenses and high implementation
costs. Hoechst Group of companies adopted the SAP system. SAP
R/2 system existed in Hoechst Germany and hence had a mandate
for all Hoechst companies outside Germany to get started on SAP.

The systems till 1998 were more concentrating on integrating internal

business functions and Business processes. Hence we could see that
once SAP was implemented, all manual and semi automatic systems
had to make way for SAP. There was a great amount of change
Management and hence a lot of redundant activites were eliminated.
How ever this integration was very much limited to internal
Vendors and customers interacted with the convention way of
business transaction through exchange of paper and not

During 1999-2000, there were good developments on Internet.

However these operations were not so safe and secure to use,
Hackers could play foul. Hence internet was used in a very limited
way with very few customers and vendors.

Post 2000, there were greater emphasis on internet securities and an

assurance to the business communities that we are very matured and
safe. This added greater volumes on internet basis. One could trade
on hosted virtual market places that were provided by CommerceOne

We were now in an era of e-Commerce or eBusiness. We could see

B2B, B2C, Email systems etc.

On the other hand there were great developments in the areas of

Enterprise Applications Integration (EAI). It was now possible to make
different ERP’s to talk to one another and share information for report
generation. Products like Hyperion, Tuxedo, TIBCO, Crosslands etc
helped immensely to make this global village through digitalization.
Today we can make any system interact with another and get all
types of consolidation reports.

You can clearly see the brick wall in the diagram disappearing
significantly as we moved from 1999 onwards. This was announcing
a new era of Enterprise Application Integration (EAI). One could
see products like Seebeyong, TIBCO etc emerging on the scenario.
One could now integrate different ERPs as well

Additionally, there was a great move to integrate other business

critical software as well. To summarize, one had entered an era of
integrating external business partners in a great way. This integration
was at the Server levels where one system of customer or Vendor
could talk to your system seamlessly. We were moving into a state of
paperless office now. All these strides were possible on account of
great developments on the Information security systems for
Internet based Systems Architectures/ business operations..

Initially, when internet securities were developed, they were internet

enabled securities. These were still vulnerable since the security
validations were at the client end. It was this reason that internet was
not extensively used for conducting business transactions.
Today, we are much safer on account of more robust security
products/ architecture for internet transactions. We have the security
that is Internet Based security systems rather than internet enabled
security systems. Here the authentication happens at the server end
rather than at the client end (as was happening in internet enabled