UNIT 2

• Today then entire enterprise must be managed within a more global,

tightly integrated, closed loop solution. This can be done by Enterprise
Resource Planning ERP).
• ERP (Enterprise Resource Planning): the techniques and concepts for
integrated management of businesses as a whole from the view point
of the effective use of management resources to improve the efficiency
of enterprise management.
• ERP packages are integrated software packages that support these ERP
concept.
• ERP software is designed to model and automate many of the basic
processes of a company from finance to the shop floor, with the goal of
integrating information across the company and eliminating complex,
expensive links between computer system.
BUSINESS MODELLING FOR
ERP
• What is business engineering ?
• Business engineering is the re-thinking of business processes to
improve the speed, quality, and output of materials or services.
• Significance of Business Engineering.
– The society is shifting from an age where labour and machinery drove
productivity to an age where productivity depends on knowledge and
information.
– Present world lives in the age of technology which has led to the
increasing importance of technology.
PRINCIPLES OF BUSINESS
ENGINEERING
• In the past, companies benefited from economies of scales
– i.e reduction of production costs brought by increased output, which allowed them to
offer standard products and services to large market.
– Large-scale businesses can afford to invest in expensive and specialist capital machinery.
For example, a supermarket chain such as Tesco can invest in technology that
improves stock control.
• The current relationship between a company and its customers is no longer
limited to just buying and selling of a product.
• Since it also includes different business activities, from customer service,
consulting and pricing, to production and shipping.
• With increased availability of goods to the customers they now have more
selectivity.
• This selectivity caused executives to examine their business processes.
• Business engineering makes companies more customer focused and
responsive to changes in the market.
• It reshapes corporate structures around business processes.
• BE implements changes by the re definition of company tasks in
process-oriented terms.
BPR, ERP AND IT
• In most of the cases, information technology powers BPR.
• Earlier, IT was used to help companies automate existing business
processes but now, technology is been used to change those
processes fundamentally.
• The merger of these two concepts resulted in– business engineering
(BE)
• BE combines innovation of information technology with BPR’s focus
on better business processes.
• Most of the ERP systems are based on client/server solution model
and business engineering techniques represents an advanced
integration of business process reengineering and information
technology.
BUSINESS ENGINEERING WITH
INFORMATION TECHNOLOGY.
• Before deciding upon a BE project, the management, IT users, and the
IT experts must get together to identify the company’s goals and the
key processes that affect its success.
• These processes should then be re engineered to improve their
effectiveness.
• Further, the role of IT in developing a business strategy should be
identified.
• Cost is another consideration.
– Includes start up cost, training cost, and networking cost which vary with
the size and scope of information technology project.
• Financial benefits in the following areas is possible when IT is coupled
with BE:
– Increased revenues per sales call.
– Decreased inventory, hardware, administrative and operating costs.
– Recaptured market share.
– Reduced or eliminated overtime.
ERP AND MANAGEMENT
CONCERNS
• Considering the investment (time & money) that ERP involves and the
risk associated with the change in these factors...decision makers
should have good understanding about the issues that should be of
their concerns.
• Divided into 3 categories:
– Short-term
– Medium-term
– Long-term
• Short-term
– 2 issues involved:
• Compliance with problems like Y2K and a single European currency.
• Shifting from legacy system and avoiding implementation delays.
• Medium-term
– Return on investment
• Long-term
– Implementing best practices from the industry onto company’s systems and
procedures.
• Lot of time is involved in implementation (include coding, testing,
networking, training and people deployment)
• Implementation delays result in exponential growth in cost
directly/indirectly.
• Therefore question with management is – how to reduce implementation
time?
• ERP deployment has 2 parts: selection and implementation
• Selection Involves listening to views of various people involved.
• Implementation time is reduced by selecting a system that is simple and
offers smart tools for system administration.
• ERP must enable a company to use information as a means to gain
competitive advantage by achieving the most effective practice in the
industry.
BUILDING AN MIS
• The approach to going for an ERP solution is linked with overall MIS
planning.
• It requires the development of a business model comprising the core
business processes or activities of the business.
• The following figure represents the business as one large system
showing the interconnection and sequence of the business subsystems
or processes that it comprises.
• In the figure: the arrow denotes the planning to arrive at the process
and accomplished from the top-down and MIS implementation is from
bottom-up.
 Business
strategy

Business
Model

Business
processes
Process Information, Decision support,
Breakdown Workflow automation
organization

MIS

Database

Fig: Building an MIS

• The processes are managed and controlled by various individuals in
various organizations.
• The ERP is developed to provide the required logistic support to the
organization to mange the processes that are part of the business
model.
• Thus, we can model a business as an integrated system making the
processes managing its facilities and materials as its resources.
• Information, is also important in managing all other resources and
can, therefore be added as a resource while showing the concept of
business as a system.
 Money People Facilities Material

information information

Input Workflow Output

Raw materials, Operations, Finished goods,

Components, processes services
services
Feedback/control

Fig: Business as a system

Fig: Blueprint of a business model
• The business model actually consist of 2 major elements:
– A blueprint describing various business processes and their interactions,
and
– An underlying data model
 Table: representative list of various core processes in a manufacturing company

Process Description

Forecasting Normally shows sales, fund flows etc, over a long period of
time, like say, the next 10 years
Fund Determines the necessity of funds and the way to raise the
Management funds. May also consider the uncertainty and risk factors.
Often some type of simulation along with ‘what if’ type of
analysis is also taken.
Auditing Inspection that determines whether things are working
according to the organizational guideline
Product Decides the product line, a complicated and unstructured
planning process, and charts the product growth cycle
Place planning Concerns the decisions about how the product is
distributed. Also includes examining the impact of
technology such as EDI. Sets procedures for determining
effectiveness of the distribution channel.
Promotional Consist of personnel, selling and advertisement. Includes
planning selling a product with a sales force.
Process Description

Price planning Determines the prices at which products are offered. Involves
application of technology to pricing support such as commercial
database services. Also include feedback and sensitive analysis.
Budget allocation Using computerized algorithms to estimate desirable mix of
funds allocated to various function

Product design This process finalizes the design and technical specification of
the product using approaches such as CAD

Facilities design Includes plant layout, assembly line planning, and working out
facilities to manufacture the products

Production Process of making new product from raw materials and

scheduling MRP generally includes production scheduling

Quality control This takes care of activities that ensure that the final product is
of satisfactory quality
Process Description

Order info collection Deals with collection of order information from

customers by various means.

Verification of order Includes verification of product numbers and

description for accuracy.

Credit authentication Depending on order, the method oa payment and

credit status of customers

Customer Informs customer about order status, integrating

notification customers into order-processing systems, etc

Filing orders Involves filling of new orders, as well as back orders

from available stock

Reordering stock Optimises the inventory holding stock

Process Description

Invoice preparation Creates invoice

Shipping goods to Activities starting from packing to final loading for

customers transportation, provide proper shipping method

Editing n recording of Editing customer purchase transaction

receivable data

Preparing outstanding Providing info on current n past due accounts

& statement
reminder
Selecting vendors Researchers for vendors

Obtaining order Deals with floating of request fro purchases to

commitments obtain customer quotation
Process Description

Receiving shipments Receive/accept or return goods that vendors ship

Validate payment Deals with validating invoices

Payment to vendors Includes preparation of payment schedules, based

on cash forecast

Cash forecasting Posting of transactions from various other

processes, ensure proper recording of revenues and
expenses
Payroll This process produces paychecks. Should also
produce data for tax purposes and keep track of
various deductions such as loans, insurance etc
Process Desccription