ERP : An Overview

By:Gaurav Goyal

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CONTENTS
Evolution of ERP What is ERP?

Components of ERP
Information Integration through ERP systems Core ERP Components Extended ERP Components Reasons for growth of ERP Market Characteristics of ERP Advantages / Disadvantages of ERP Why ERP over conventional apps? ERP Implementation : Problem areas ERP Implementation Costs Roadmap for successful ERP implementation Feedback??
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EVOLUTION OF ERP
Types of Systems
Reorder point systems

Time
1960s

Purpose
Used historical data to forecast future inventory demand; when an item falls below a predetermined level additional inventory is ordered. Offered a demand-based approach for planning manufacture of products and ordering inventory. Added capacity planning; could schedule and monitor the execution of production plans

Systems
Designed to manage high volume production of a few products, with constant demand; focus on cost.

Materials requirement planning (MRP) systems

1970s

Focused on marketing; emphasis on grater production integration and planning. Focus on quality; manufacturing strategy focused on process control, reduced overhead costs and detailed cost reporting. Focus on the ability to create and adapt new pre-cuts and services on a timely basis to meet customers specific needs Integrates supplier manufacturing and customer data throughout the sup-ply chain.

Manufacturing resource planning (MRP-II) systems

1980

MRP-II with manufacturing execution (MES)systems

1990s

Provide ability to adapt production schedules to meet customers needs; provide additional feedback with respect to shop floor activities. Integrate manufacturing with supply chain processes across the firm; designed to integrate the firms business processes to create a seamless information flow from suppliers, through manufacturing to distribution to the customer.

ERP(Enterprise Re-source Planning Systems)

Late 1990 and onward

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EVOLUTION OF ERP
Production Planning and Control technique: MRP to CRM to

MRP II
Business Perspective: expended from the simple coordination of

manufacturing processes to the composite integration of enterprise-wide back end processes.

Technological Aspect: ERP has evolved from mere legacy

implementation to a more flexible, tired client-server architecture.

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WHAT IS ERP?
Enterprise Resource Planning is a software solution that

integrates the various functional spheres in an organization --a link through the entire supply chain, aimed at adapting the best industry and management practices for providing the right product at the right place and at the right time at minimum cost.

It is a total business solution that not only supports various business processes within the organization but also integrates its value chain with its suppliers and customers.

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What is a database
A database is a structured collection of records or data stored in

a computer system so that a computer program or person using a query language can consult it to retrieve related information.
The records retrieved in answer to queries provide information

that can be used to make decisions.

The computer program used to manage and query a database is

known as a database management system (DBMS).

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COMPONENTS OF ERP
Core ERP component traditional components included in

most ERP systems and they primarily focus on internal operations

Extended ERP component extra components that meet the

organizational needs not covered by the core components and primarily focus on external operations

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COMPONENTS OF ERP

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Strategic & Operational Planning Finance Manufacturing Human Resources Materials Management

ERP Syste m

Logistics Management

Quality Management

Maintenance Management

Sales & Distribution

INFORMATION INTEGRATION THROUGH ERP SYSTEMS

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CORE ERP COMPONENTS

Three most common core ERP components

1. 2.

Accounting and finance Production and materials management

3.

Human resource

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Accounting and Finance ERP Components

Accounting and finance ERP component manages

accounting data and financial processes within the enterprise with functions such as general ledger, accounts payable, accounts receivable, budgeting, and asset management

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Production and Materials Management ERP Components

Production and materials

management ERP component handles the various aspects of production planning and execution such as demand forecasting, production scheduling, job cost accounting, and quality control

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EXTENDED ERP COMPONENTS

Extended ERP components include: I.

Business intelligence

II.
III. IV.

Customer relationship management

Supply chain management E-business

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BUSINESS INTELLIGENCE
Business intelligence (BI) refers to skills, technologies,

applications and practices used to help a business acquire a better understanding of its commercial context.
It is a broad category of applications and technologies

for gathering, storing, analyzing, and providing access to data to help enterprise users make better business decisions. BI applications include the activities of decision support systems, query and reporting, online analytical processing (OLAP), statistical analysis, forecasting, and data mining
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CUSTOMER RELATIONSHIP MANAGEMENT

CRM consists of the processes a company uses to

track and organize its contacts with its current and prospective customers. CRM software is used to support these processes Information about customers and customer interactions can be entered, stored and accessed by employees in different company departments. Typical CRM goals are to improve services provided to customers, and to use customer contact information for targeted marketing.
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SUPPY CHAIN MANAGEMENT

Supply chain management (SCM) is the

management of a network of interconnected businesses involved in the ultimate provision of product and service packages required by end customers. Supply Chain Management spans all movement and storage of raw materials, work-in-process inventory, and finished goods from point of origin to point of consumption (supply chain).

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e-BUSINESS
E-business (electronic business), derived from such

terms as "e-mail" and "e-commerce," is the conduct of business on the Internet, not only buying and selling but also servicing customers and collaborating with business partners. Companies are using the Web to : buy parts and supplies from other companies, to collaborate on sales promotions and to do joint research.

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REASONS FOR GROWTH OF ERP MARKET

To enable improved business performance Cycle time reduction Increased business utility Inventory reduction Order fulfillment improvement To support business growth requirements New products/product lines, new customers Global requirements including multiple languages and currencies To provide flexible, integrated, real-time decision

support
Improve responsiveness across the organization

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REASONS FOR GROWTH OF ERP MARKET

To eliminate limitation in legacy systems Century dating issues Fragmenting of data and processing Inflexibility to change Insupportable technologies To take advantage of the untapped mid-market Increased functionality at a reasonable cost Client server/open systems technology Vertical market solutions

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Characteristics of ERP
Integrated Architecture

Real time processing

Flexibility Modular and open architecture Best business practices Global functionality Beyond organizational boundaries

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Session 2 complete

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ADVANTAGES OF ERP
BUSINESS INTEGRATION Automatic data updating is possible among related business related components. Communication and integration of information is strong hence no obstacle in introducing new products or shifting to new business classification. FLEXIBILITY Different languages, currencies, accounting standards and so on can be covered in one system. Also helps to cope with company globalisation and system unification.

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ADVANTAGES OF ERP
BETTER ANALYSIS AND PLANNING CAPABILITIES It becomes possible to fully utilise decision support systems and simulation functions due to comprehensive data integration. USE OF LATEST TECHNOLOGY Utilisation of the latest developments in Information Technology (IT) enables ERP vendors to grow and also sustain the growth. Latest technologies include open systems, client/server technology, Internet/Intranet, CALS (Computer-Aided Acquisition and Logistics Support), electronic-commerce etc.

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ADVANTAGES OF ERP
What benefit
Reliable information access Avoid data and operations redundancy

How
Common DBMS, consistent and accurate data, improved reports. Modules access same data from the central database, avoids multiple data input and update operations. Minimizes retrieving and reporting delays Time savings, improved control by enterprise-wide analysis of organizational decisions. Changes in business processes easy to adapt and restructure. Structured and modular design with add-ons. Vendor-supported long-term contract as part of the system procurement. Extended modules such as CRM and SCM Internet commerce, collaborative culture.

Delivery and cycle time reduction Cost reduction

Easy adaptability Improved scalability Improved maintenance Global outreach E-Commerce, e-business

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ADVANTAGES OF ERP
What benefit
Improved organizational efficiency

How
Help business processes across departments into single enterprisewide information system. Providing transactional processing model. ERP systems provide integration along multiple functional areas hence facilitate improved coordination and decision-making capabilities.

Implement best practices and remove information asymmetries

Within themselves a thousand or more best practiced business processes. ERP systems remove information asymmetries by consolidating all the information into a common database
Better alignment of strategies and operations to minimize organizational risks and maximize productivity and insight by leveraging self-service and analytics across the organization.

Organizational alignment

Data accessibility
Lower operational cost Additional tangible benefits

Data Warehouse
ERP software help to track actual costs of activities and perform activity-based costing and reduction in the overall operational costs. Increased flexibility of the organization, reduced quality cost, enhanced information accuracy, decision making capabilities, etc.

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DISADVANTAGES OF ERP
DISADVANTAGES
Time-consuming

HOW TO OVERCOME?
Minimize sensitive issues, internal politics and raise general consensus. Cost may vary from thousands of dollars to millions. Business process reengineering cost may be extremely high. The architecture and components of the selected system should conform to the business processes, culture and strategic goals of the organization. Single vendor vs. multi-vendor consideration, options for best of breeds, long-term committed support. ERP system may have too many features and modules so the user needs to consider carefully and implement the needful only. Look for vendor investment in R&D, long term commitment to product and services, consider Internet-enabled systems.

Expensive

Conformity of the modules

Vendor dependence

Features and complexity

Scalability and global outreach

Extended ERP capability

Consider middle-ware add-on facilities and extended modules such as CRM and SCM.

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WHY ERP OVER CONVENTIONAL APPS?

ERP handles individual business functions such as accounts and

inventory, and also the entire range of business functions

ERP packages are targeted at everything from small businesses

to the largest organizations, and they can be composed of a highly flexible decentralized database and an information system cluster linked by a network.
ERP packages have the ability to adapt globally since it has

multilingual and multi-currency capacity and thus enables companies manufacturing & selling in different areas of the world to manage their data effectively.

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ERP IMPLEMENTATION: PROBLEM AREAS

Attitude reform of the employees at all levels Companies not having time schedules and deadlines do not

succeed.
Companies should be able to answer questions like By when in

what way can such-and-such thing be achieved?, How should we do such-and-such thing? etc
Cost estimations should be done in an effective manner for ERP

implementation, should include additional costs like consultation, customization, training and education.

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ERP Implementation Costs

Training
Integration and Testing Customization Data conversion Data analysis Best employee turnover Implementation teams cant be replaced Post-ERP depression

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Challenges Faced During ERP Implementation

All ERP implementations are not successful. Implementation succeed or fail due to a number of reasons. Implementation risks occur throughout the ERP system life cycle, which ranges from go-on-go decisions on ERP to the time the system has gone live, including training issues. The type of risks and the extent of their impact on the organization vary as we move through the ERP implementation life cycle. (Daniel E. OLeary, 2000) 1. Technical Risk 2. Business Risk (all other risks are cover in it) a. An organizations choice of the model, artifacts, and processes used in ERP implementation b. Conformity of mapping the existing processes with the new system in the org. 5/3/2012 30 c. Integration of the existing processes with the external partners.

Roadmap for successful ERP implementation

Most important step is the GAP ANALYSIS. What is GAP ANALYSIS? It is the step of negotiation between the company

requirements and the functions a package possesses.

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STEPS IN GAP ANALYSIS

To make a note of the existing business system and list out the flaws

and positive aspects.

Evaluate and decide the additions that need to be made to the

business in view of ERP implementation.

Rating the existing level of performance to set a benchmark or

standards for the business as on date.

Having an in-depth study of the regulations and statements in the

organizations and suggesting modifications.

Clearly defining the roles of individuals in the organization so that the

priorities are met and the structure remains undisturbed.

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STEPS IN GAP ANALYSIS

Checking if the objective in discharging duties are met because it is

the ultimate solution to any issue. If they are not met the gaps should be made known and corrected.
Ensuring that functions are executed properly and if need be

personnel can be rewarded to boost up and encourage performance.

Gap Analysis either recommends the implementation of an ERP

system or rejects the idea in totality by taking all possible factors into consideration.

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FEEDBACK??

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