Industrial Engineering and Enterprise Resource Planning

MODULE NO : ERP MR. VAIBHAV VITHOBA NAIK

Industrial Engineering and Entrprise Resources Planning

Module No 06

Vaibhav Vithoba Naik

Industrial Engineering and Entrprise Resources Planning

1. Short notes On ERP? Ans:- Enterprise Resource Planning ERP 1. Enterprise Resource Planning has become a powerful tool in the h and s of management for effective use of resources and to improve efficiency of an enterprise. 2. During 1970s Material Requirement Planning (MRP) was a fundamental concept of production management in manufacturing industries. 3. In todays rapidly changing business environment every organization has to face new market, new st and ard for quality assurance, new competition, increasing customer expectations. 4. As a result the business enterprises are in a constant need of reviewing and re-engineering their processes in order to survive and grow under competitive environment. 5. With the advent of innovations in information technology, a concept of integrated approach embracing all functional areas have been evolved. 6. This has led to development of ERP packages which were originally targeted at manufacturing industries and consisted mainly of functions like Sales Management, Production Management, Accounting and Financial Affairs. 7. In the recent years this has been extended to all industries covering whole management functions like: a. b. c. d. e. f. g. h. i. . Manufacturing Material Management Quality Management Sales and Distribution Logistic Management Maintenance Management Human Resources Finance Startegical and Operational Planning etc

Module No 06

Vaibhav Vithoba Naik

Industrial Engineering and Entrprise Resources Planning

8. Some popularly known ERP packages a. SAP AG b. Oracle Corporation c. PeopleSoft d. BaaN e. J D Adwards f. INTENTA (Sweden) g. QUAD h. Marshall (Developed by Ramco System, Chennai, India) i. SSA (System Software Associates, Inc., USA) etc.

2. Discuss the evolution and architecture of ERP in details?

Module No 06 4 Vaibhav Vithoba Naik

Industrial Engineering and Entrprise Resources Planning

Ans:- EVOLUTION OF ERP SYSTEMS 1. The evolution of ERP systems closely followed the spectacular developments in the field of computer hardware and software systems. 2. During the 1960s most organizations designed, developed and implemented centralized computing systems, mostly automating their inventory control systems using inventory control packages (IC). 3. These were legacy systems based on programming languages such as COBOL, ALGOL and FORTRAN. 4. Material requirements planning (MRP) systems were developed in the 1970s which involved mainly planning the product or parts requirements according to the master production schedule. 5. Following this route new software systems called manufacturing resources planning (MRP II) were introduced in the 1980s with an emphasis on optimizing manufacturing processes by synchronizing the materials with production requirements. 6. MRP II included areas such as shop floor and distribution management, project management, finance, human resource and engineering. 7. ERP systems first appeared in the late 1980s and the beginning of the 1990s with the power of enterprise-wide inter-functional coordination and integration. Based on the technological foundations of MRP and MRP II, ERP systems integrate business processes including manufacturing, distribution, accounting, financial, human resource management, project management, inventory management, service and maintenance, and transportation, providing accessibility, visibility and consistency across the enterprise. 8. During the 1990s ERP vendors added more modules and functions as add-ons to the core modules giving birth to the extended ERPs. These ERP extensions include advanced planning and scheduling

Module No 06

Vaibhav Vithoba Naik

Industrial Engineering and Entrprise Resources Planning

(APS), e-business solutions such as customer relationship management (CRM) and supply chain management (SCM).

2000s Extended ERP 1990s Enterprise Resource Planning (ERP) 1980s Manufacturing Resources Planning (MRP1970s Material Requirement Planning (MRP) 1960 Inventory Control Packages s

Timeline System 1960s Inventory Management & Control

1970s

1980s

1990s

Description Inventory Management and control is the combination of information technology and business processes of maintaining the appropriate level of stock in a warehouse. The activities of inventory management include identifying inventory requirements, setting targets, providing replenishment techniques and options, monitoring item usages, reconciling the inventory balances, and reporting inventory status. Material Materials Requirement Planning (MRP) utilizes software Requirement applications for scheduling production processes. MRP Planning (MRP) generates schedules for the operations and raw material purchases based on the production requirements of finished goods, the structure of the production system, the current inventories levels and the lot sizing procedure for each operation. Manufacturing Manufacturing Requirements Planning or MRP utilizes software Requirements applications for coordinating manufacturing processes, from Planning (MRP II) product planning, parts purchasing, inventory control to product distribution. Enterprise Resource Enterprise Resource Planning or ERP uses multi-module Planning (ERP) application software for improving the performance of the internal business processes. ERP systems often integrate business activities across functional departments, from product planning, parts purchasing, inventory control, product distribution, fulfillment, to order tracking. ERP software systems may include application modules for supporting marketing, finance, accounting and human resources

ERP SYSTEMS ARCHITECTURE

Module No 06

Vaibhav Vithoba Naik

Industrial Engineering and Entrprise Resources Planning

1. ERP vendors, mostly experienced from the MRP and financial software services fields, realized the limitations of the old legacy information systems used in large enterprises of the 1970s and 1980s. 2. Some of these old systems were developed in-house while others were developed by different vendors using several different database management systems, languages and packages, creating islands of non compatible solutions unfit for seamless data flow between them. 3. It was difficult to increase the capacity of such systems or the users were unable to upgrade them with the organizations business changes, strategic goals and new information technologies. 4. An ERP system is required to have the following characteristics: a. Modular design comprising many distinct business modules such as financial, manufacturing, accounting, distribution, etc. b. Use centralized common database management system (DBMS) c. The modules are integrated and provide seamless data flow among the modules, interfaces d. They are generally complex systems involving high cost e. They are flexible and offer best business practices f. They require time-consuming tailoring and configuration setups for integrating with the companys business functions g. The modules work in real time with online and batch processing capabilities h. They are or soon they will be Internet-enabled 5. Different ERP vendors provide ERP systems with some degree of specialty but the core modules are almost the same for all of them. increasing operational transparency through standard

6. Some of the core ERP modules found in the successful ERP systems are the following:

Module No 06

Vaibhav Vithoba Naik

Industrial Engineering and Entrprise Resources Planning

a. Accounting management b. Financial management c. Manufacturing management d. Production management e. Transportation management f. Sales & distribution management g. Human resources management h. Supply chain management i. Customer relationship management j. E-Business

3. Short notes on selection process an ERP packages and Cost of ERP implementation?

Module No 06

Vaibhav Vithoba Naik

Industrial Engineering and Entrprise Resources Planning

Ans: Selection process of an ERP Package 1. There are many ERP packages available in the market. Analyzing

all the packages for choosing the right one is a time consuming process. 2. Thus, it is better to limit the number of packages at the beginning

for the purpose of evaluation. 3. Looking at the product literature of the vendors, one can eliminate

the packages that are not at all suitable. Normally this evaluation process is done by a Committee. 4. What is required to be done is gap-analysis between the

requirement of the company and capability of the package. 5. Presentation or demo from the selective vendors will provide

some direction towards choosing the best. Of course, cost of the package is also a key factor. Cost benefit analysis is also to be done. 6. The Common Criteria for selection for a package: a. How best the package fits the requirement of the company b. Provision for accommodating the changes in the system c. Implementation and Post Implementation support from vendor d. Reliability of Vendor e. Change in Hardware and Skill requirement f. Cost of the Package and Budget Cost of ERP Implementation 1. A budget is required for implementation of an ERP package.

Module No 06

Vaibhav Vithoba Naik

Industrial Engineering and Entrprise Resources Planning

2. It is not only the cost of ERP package but also there are many hidden costs that are to be considered. 3. The following costs are to be considered: a. ERP package cost. b. Consultant cost. c. Cost of Data conversion. d. Cost of training. e. Cost of testing. f. Cost of Post-Implementation support.

4. What are the salient features of ERP in details? Ans:- SALIENT FEATURES OF ERP SYSTEMS

Module No 06

10

Vaibhav Vithoba Naik

Industrial Engineering and Entrprise Resources Planning

Some of the major features of ERP and whatever ERP can do for the business system as below. 1. ERP facilitates companywide integrated information system covering all functional areas like manufaturing,selling and distribution, payables, receivables, Inventory, Accountants, Human resources, Purchase, etc. 2. ERP performs core corporate activities and increases customer service and thereby augmenting the corporate image. 3. ERP bridges the information gap across the organization. 4. ERP provides for complete integration of systems not only across the departments in company but also across the companies under the same management. 5. ERP is the only solution for better Project Management. 6. ERP allows automatic introduction of latest technologies like Electronic Fund Transfer, Electronic Data Interchange, Intranet, Intranet, video conferencing-Commerce. 7. ERP eliminates the most of the business problem like Material shortages, productivity enhancements, Customer service, Clash management, inventory problems, quality problems, Prompt delivery.etc. 8. ERP not only addresses the current requirements of the company but also provides the opportunity of continually improving and refining business process. 9. ERP provides business intelligence tolls like Decision Support System (DSS), Executive Information System (EIS), Reporting Data Mining and Early Warning system (Robots) for enabling the people to make better decision and thus improve their business process.

Module No 06

11

Vaibhav Vithoba Naik

Industrial Engineering and Entrprise Resources Planning

5. What are the stages of ERP implementation? What is the possible hurdle in implementing in it? Or Explain ERP implementation cycle in details? Ans: - Stages of ERP implementation cycle. ERP lifecycle is in which highlights the different stages in

implementation. There are different stages of the ERP implementation that are as give below: 1. Pre evaluation screening 2. Evaluation package 3. Project planning 4. Gap analysis 5. Reengineering 6. Team training 7. Testing 8. Post implementation 1. Pre evaluation screening Once the company has decided to go for the ERP system, the search for the package must start as there are hundreds of packages it is always better to do a through and detailed evaluation of a small number of packages, than doing analysis of dozens of packages. This stage will be useful in eliminating those packages that are not suitable for the business process.

2. Evaluation package
Module No 06 12 Vaibhav Vithoba Naik

Industrial Engineering and Entrprise Resources Planning

This stage is considered an important phases of the ERP implementation, as the package that one selects will decide the success or failure of the project.

Implementation of an ERP involves huge investments and it is not easy to switch between different packages, so the right thing is do it right the first time.

Once the packages to be evaluated are identified, the company needs to develop selection criteria that permit the evaluation of all the available packages on the same scale.

3.Project planning This is the phase that designs the implementation process. It is in this phase that the details of how to go about the implementation are decided. Time schedules deadlines, etc for the project are arrived at. The plan is developed, roles are identified and responsibilities are assigned. It will also decide when to begin the project, how to do it and it completion. A committee by the team leaders of each implementation group usually does such a planning. 4. Gap analysis This is considered the most crucial phase for the success of erp implementation. This is the process through which the companies create a complete model of where they are now, and in which direction will they opt in the future. It has been estimated that even the best packages will only meet 80% of the companys requirements.
Module No 06 13 Vaibhav Vithoba Naik

Industrial Engineering and Entrprise Resources Planning

The remaining 20% presents problematic issues for the companys reengineering.

5. Reengineering It is in this phase that human factors are taken into consideration. While every implementation is going to involve a significant change in number of employees and their job responsibilities, as the process becomes more automated and efficient, it is best to treat ERP as an investment as well as cost cutting measure. 6. Team training Training is also an important phase in the implementation, which takes place along with the process of implementation. This is the phase where the company trains its employees to implement and later, run the system. Thus, it is vital for the company to choose the right employee who has the right attitude- people who are willing to change, learn new things and are not afraid of technology and a good functional knowledge. 7. Testing This is the phase where one tries to break the system. One has reached a point where the company is testing the real case scenarios. The system is configured and now you must come up with extreme cases like system overloads, multiple users logging on at the same time, users entering invalid data, hackers trying to access restricted areas and so on.

Module No 06

14

Vaibhav Vithoba Naik

Industrial Engineering and Entrprise Resources Planning

This phase is performed to find the weak link so that it can be rectified before its implementation.

8. Post implementation One the implementation is over, the vendor and the hired consultants will go. To reap the fruit of the implementation it is very important that the system has wide acceptance. There should be enough employees who are trained to handle problems those crops up time to time. The system must be updated with the change in technology. The post implementation will need a different set of roles and skills than those with less integrated kind of systems.

ERP modules

Module No 06

15

Vaibhav Vithoba Naik

Industrial Engineering and Entrprise Resources Planning

ERP software is made up of many software modules. Each ERP software module mimics a major functional area of an organization. Common ERP modules include modules for product planning, parts and material purchasing, inventory control, product distribution, order tracking, finance, accounting, marketing, and HR. Organizations often selectively implement the ERP modules that are both economically and technically feasible.

Module No 06

16

Vaibhav Vithoba Naik

Industrial Engineering and Entrprise Resources Planning

Figure Modules of ERP system

1. ERP Production Planning Module a. In the process of evolution of manufacturing requirements planning (MRP) II into ERP, while vendors have developed more robust software for production planning, consulting firms have accumulated vast knowledge of implementing production planning module. b. Production planning optimizes the utilization of manufacturing capacity, parts, components and material resources using historical production data and sales forecasting.

Module No 06

17

Vaibhav Vithoba Naik

Industrial Engineering and Entrprise Resources Planning

2.

ERP Purchasing Module

a. Purchase module streamlines procurement of required raw materials. b. It automates the processes of identifying potential suppliers, negotiating price, awarding purchase order to the supplier, and billing processes. c. Purchase module is tightly integrated with the inventory control and production planning modules. d. Purchasing module is often integrated with supply chain management software. 3. ERP Inventory Control Module a. Inventory module facilitates processes of maintaining the appropriate level of stock in a warehouse. b. The activities of inventory control involves in identifying inventory requirements, setting targets, providing replenishment techniques and options, monitoring item usages, reconciling the inventory balances, and reporting inventory status. c. Integration of inventory control module with sales, purchase, finance modules allows ERP systems to generate vigilant executive level reports. 4. ERP Sales Module a. Revenues from sales are live blood for commercial organizations. b. Sales module implements functions of order placement, order scheduling, shipping and invoicing. c. Sales module is closely integrated with organizations' ecommerce websites. d. Many ERP vendors offer online storefront as part of the sales module.

Module No 06

18

Vaibhav Vithoba Naik

Industrial Engineering and Entrprise Resources Planning

5. ERP Market in Module a. ERP marketing module supports lead generation, direct mailing campaign and more. 6. ERP Financial Module

a. Both for-profit organizations and non-profit organizations benefit from the implementation of ERP financial module. b. The financial module is the core of many ERP software systems. c. It can gather financial data from various functional departments, and generates valuable financial reports such balance sheet, general ledger, trail balance, and quarterly financial statements. 7. ERP HR Module a. HR (Human Resources) is another widely implemented ERP module. b. HR module streamlines the management of human resources and human capitals. c. HR modules routinely maintain a complete employee database including contact information, salary details, attendance, performance evaluation and promotion of all employees. d. Advanced HR module is integrated with knowledge management systems to optimally utilize the expertise of all employees.

Module No 06

19

Vaibhav Vithoba Naik

Industrial Engineering and Entrprise Resources Planning

6. List the business modules in an ERP packages? Ans: Business Modules in an ERP Package a. All ERP packages contain a set of modules. These modules are

related to different functional areas like Finance, Manufacturing and Production Planning, Materials Management, Selling and Distribution and so on. b. c. These modules in a business systems have close relationship. An ERP system takes care the flow of information from different

modules and understanding the interactions among them. d. To avoid data redundancy, data generated from the activity

centers are entered and the same data is considered by different modules of the system where the same is relevant for the purpose of understanding the impact of one the other. This is the basis of integration of information. This is the most important feature of an ERP system.

Module No 06

20

Vaibhav Vithoba Naik

Industrial Engineering and Entrprise Resources Planning

1. Finance Module: Finance module in an ERP system will have the following sub-systems: a. Financial Accounting: General Ledger, Accounts Receivable, Accounts Payable, Fixed Assets Accounting etc. b. Investment Management: Investment Planning, Budgeting,

Depreciation, Forecast, Simulation etc. c. Controlling: Overheads Cost Controlling; Activity Based Costing,

Product Costing, Profitability Analysis etc. d. Treasury: Cash Management, Treasury Management, Market Risk

Management, Funds Management etc.

2. Manufacturing Module: Manufacturing Module generally has the following sub-system: a. Material and Capacity Planning b. JIT/ Repetitive Manufacturing c. Engineering Data Management d. Cost Management e. Quality Management f. Configuration Management g. Tooling etc.

Module No 06

21

Vaibhav Vithoba Naik

Industrial Engineering and Entrprise Resources Planning

3. Human Resources Module: Human Resource Module generally has the following sub-systems : a. Personnel Management - HR Master Data, personnel

administration, Recruitment, Deployment, Transfer etc. b. Organizational Management - Job Specification, Staffing Scheduling, Personnel cost planning etc. c. Payroll Accounting - Salary Calculation, Income Tax Calculation, Accounting for Fringe Benefits d. Time Management - Staff Planning, Work Scheduling, Time

Recording, Absence recording etc.

Module No 06

22

Vaibhav Vithoba Naik

Industrial Engineering and Entrprise Resources Planning

4.

Material Management Module: Material Management Module generally consists of the following sub-systems: a. Material Procurement planning b. Purchasing c. Vendor Evaluation d. Inventory Management e. Material Inspection etc.

5. Sales and Distribution Module: a. Master Data Management b. Order Management c. Warehouse Management d. Shipping e. Billing f. Pricing g. Sales Support h. Transportation i. Foreign Trade etc.

Module No 06

23

Vaibhav Vithoba Naik

Industrial Engineering and Entrprise Resources Planning

7. Discuss the various guide lines for implementing of the ERP? List the various modules? ERP Implementation Life cycle ERP implementation project involves different phases which have definite activities as explained below: 1. Pre-evaluation screening To search for perfect package which will be most suitable in terms of functional fit of the business process, skill set available and easiness to adopt. 2. Package evaluation To understanding the performance of the business and does the cost benefit analysis. 3. Project Planning Phase To make a tentative plan for implementation in terms of time, identification of person responsible for co-ordination of the implementation programmes, skill development and monitoring the progress. 4. Gap Analysis To identify the gap between the existing system and future expectations from the ERP system so as to optimize the outcome from the implementation programme. 5. Re-engineering to bring the necessary changes in the system in terms of physical system, hardware, mindset of the people, data flow and reporting.

Module No 06

24

Vaibhav Vithoba Naik

Industrial Engineering and Entrprise Resources Planning

6. Configuration To install the necessary hardware, data base management system and configuration of the ERP system accordingly. 7. Testing To test the system with test data set like entering data, validating them and generating reports for all modules and checking their correctness. 8. End user Training To impart training to people from different functional areas who will be associated with operations and handling reports. 9. Going live To finally switching over to new system with data migration, and running the system with live data of all functional areas. 10. Post - Implementation To arrange for maintenance of the system in terms provision of technical expertise in cases of problems.

Module No 06

25

Vaibhav Vithoba Naik

Industrial Engineering and Entrprise Resources Planning

8. What are the tangible and intangible benefits of ERP system? OR Explain the tangible and intangible benefits of ERP system? Ans: - Tangible benefits are those measured in monetary terms and intangible benefits cannot be measured in monetary terms but they do have a very significant business impact. Tangible benefits: 1. Improves the productivity of process and personnel 2. Lowering the cost of products and services purchased 3. Paper and postage cost reductions 4. Inventory reduction 5. Lead time reduction 6. Reduced stock obsolescence 7. Faster product / service look-up and ordering saving time and money 8. Automated ordering and payment, lowering payment processing and paper costs Intangible benefits: 2. Increases organizational transparency and responsibility 3. Accurate and faster access to data for timely decisions 4. Can reach more vendors, producing more competitive bids ; 5. Improved customer response

Module No 06

26

Vaibhav Vithoba Naik

Industrial Engineering and Entrprise Resources Planning

6. Saves enormous time and effort in data entry ; 7. More controls thereby lowering the risk of mis-utilization of resources 8. Facilitates strategic planning

Module No 06

27

Vaibhav Vithoba Naik