A Report on Contemporary issue

ENTERPRISE RESOURCE PLANNING (ERP)

Submitted By: Submitted to:

Balwant
Mukesh

Singh
Machara
PREFACE

In this report, I have tried to highlight the Indian ERP packages, by inserting a section of Example of an Indian ERP packages that includes the integrated features of the ERP and explains the ERP III architecture in brief. Also two case studies have been inserted which demonstrate the successful implementation of the ERP packages in India. I fervently hope that this report on ERP will make the text more useful and reader friendly.

Balwant Singh

TABLE OF CONTENT S.N O

1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. INTRODUCTION TO ERP DEFINITION AND FUNCTIONING OF ERP FEATURES OF ERP IMPLEMENTATION OF ERP STEPS IN IMPLEMENTION OF ERP ERP DEPLOYMENT- MAJOR ISSUE PRESENT SCENERIO ERP DOMAIN ADVANTAGES AND DISADVANTAGES WHY TO MODEL ENTERPRISE FUTURE GROWTH OF ERP NEED TO QUANTIFY ERP BENEFITS ERP COST BENEFIT ANALYSIS ERP EVALUATION- AN ALTERNATE APPROACH WHERE ERP COMES IN BUSINESS MODELING IN PRACTICE ROLE OF CONSULTANTS, VENDORS AND USERS EXAMPLE OF AN INDIAN ERP PACKAGE CASE STUDY CONCLUSION BIBLIOGRAPHY

CONTENT

PG.N O
5 6 7 9 10 11 11 13 15 17 18 19 20 22 24 25 26 27 29 34 35

INTRODUCTION

Companies all over the world use ERP to integrate their business processes and thereby reduce cost and improve productivity. Due to globalization, marketing and manufacturing needed to have close interaction/coordination including accounting and finance and these are to be integrated. Globalization also meant multiple handling of various functions like marketing, sales, finance and accounting, rules and regulations, multiple currencies, manufacturing etc. Therefore, there is a need to integrate manufacturing with all other functions of the firm. Traditionally, companies developed isolated computer applications to suit and satisfy each of their functional segments such as sales, purchase, production, finance, marketing, planning etc. Materials Requirement Planning

(MRP-I) and Manufacturing Resource Planning (MRP-II) were developed basically to take care of requirements of manufacturing. But the information available on various functions was so disintegrated and scattered that it was almost impossible to consolidate the information. The need was to integrate all functions of an enterprise from the product development and design to marketing in a closed loop. As such, MRP-I and MRP-II will be a subset of the above objective. Such an enterprise wide system that would meet the information and decision needs of the enterprise as a whole, covering all the functions of management is the Enterprise Resource Planning (ERP) system. ERP allows various functional departments to share information and to communicate.To be successful in todays global competitive market, it is necessary for business enterprises to continuously strive for developing a high level of integration and coordination along the elements of supply chain and improve in the areas such as time to reach the market, customer satisfaction/communication, performance and monitoring.
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The ERP software meets these expectations and can handle all activities from customer enquiry to the realization of the revenue of the entire process in an interactive manner.

CONCEPTUAL FRAMEWORK Definition and Functioning of ERP: ERP is a software package developed for optimum use of resources of an enterprise in a planned manner. ERP has a central data base and a cross-enterprise interfacing facility shared by all functions of the organization. It should always offer a total solution and there should be seamless integration across all functions of an enterprise. ERP integrates entire organization and enable the enterprise to increase its productivity. ERP provides almost instantaneous access transactional information through out the organization. Functioning of ERP: Functioning of ERP can be best Suppose an order for a product/good is placed by a customer, then ERP -Checks for the stock -Reserves the quantity for dispatch -Opens the customer account to verify the credit
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-Processes the order, -If the credit limits exceeds, then it places hold on the order -All these functions are carried out instantaneously, as ERP integrates production logistics distribution, marketing, human resource development and finance etc.

Features of ERP: The general ERP Model has a central data base shared by all functions of the enterprise. Some features of ERP are as follows:
1.

Seamless Integration: ERP data base system provides total solution This and seamless is integration useful to across manage includes automatic functions and across different divisions of the enterprise. engineering routing feature change management. This control, and

electronics approval, routing change order process revision level generation of product structures. The crucial function of integrating new product in production or change in
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existing products fully into the enterprise system is possible through the feature of seamless integration of ERP.
2.

Supply chain management: The end to end supply chain management is vital for an enterprise having multiple manufacturing divisions and distribution network. The intelligence resource planning of ERP system facilitates to optimize the overall flow of demand and supply data and to rebuild relationships between various activities to optimally identify the demand supply chain. Resource management: The resources (man,

3.

machine and materials) are to be effectively managed. ERP software package works out and provide the numerous functions related to management of human resources. These are employee data base, job descriptions, and evaluations, applicant tracking, performance review, training needs, career and succession planning creating alternate organization structure, etc.

ERP

also

provides

on

line

records

of

machines/equipments location and status, maintenance costs and operating costs to effectively manage the equipment/resources.
4.

Order management: This feature of ERP is used to handle the incoming customer orders. Manufacturing/operations planning and

5.

implementation: ERP provides this capability for the management by planning all manufacturing facilities.
6.

Logistic management: ERP software also has capability Strategic for business logistic planning: management ERP of inbound/outbound, internal nature, etc.

7.

facilitates

management for strategic business planning useful in multi product and multi-division and multi location enterprise.
8.

Accommodating variety: ERP has a feature of multilingual and multi-currency capabilities. Multimode manufacturing and multi-facility provide the capability required to compete successfully globally.

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9.

Integrating management information: ERP is capable and used: As a flexible reporting tool to extract information as and when needed without depending on any one. As electronic data interchange (EDI). For imaging to provide the ability to display drawings/specifications, ability to store original quotations, customer orders, purchase orders, sale orders, etc. As data base creation for various activities.

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IMPLEMENTATION OF ERP The way the ERP is implemented is very important to gain benefits. First, and foremost, the attitude of people has to change i.e. to change the way they do their job. People in general resist to any change. In fact, if peoples attitude is not changed, the ERP may be a hindrance to the smooth running of the operations. It should be realized, that the results from ERP are not instantaneous. The organization has to keep on improving its policies, procedures and systems, and ways of transacting business with ERP as an enabler. The emphasis is not to expect a revolution but a gradual transformation. STEPS IN IMPLEMENTATION OF ERP 1. Identify need for having ERP system. 2. Within commitment management to implement ERP system.
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3.

Awareness training to employees to change in their attitude as required by ERP philosophy and creates willingness in them to accept the new way of doing the job.

4. Create a nucleus of people who will work as a team to interact with ERP consultants. Clarify roles and jobs. 5. Document and evaluate old process and the new process planned. 6. Select the software and the vendor who would do the desired job. This would involve parameters like: Global and local presence of software and Type of industry that the software Obsolescence of the software package. Price Ease of of package and cost (nature of of its vendor. attempts to target.

implementation. implementation package, its design, its modularity, and the people who install it).

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After sales support/service.

7. Draw up a plan of implementation which may include: Team formation for implementation. Training of team personnel of the enterprise. .Schedule for the test run. Training of user. ERP DEPLOYMENT: MAJOR ISSUES The present process of implementation involves the vendor, a consultant and the firm itself. The consultants will help you to map the processes to the actual application. If the process does not exist in the system then the process is Reengineered. The consultants claim to be having the knowledge of the best practices. Nevertheless, the success of a process cannot just be industry-specific but will depend on the kind of environment and culture that the company operates in. For a successful ERP implementation, it is important that the implementation should not be either vendor-driven or consultant-driven; there should be an in-house understanding of all the

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processes and issues. In addition, many firms believe that the investment is done to fix problems. There is a belief that IT can fix some of the issues, but one should understand that this is a strategic investment.

PRESENT SCENERIO The concept of ERP has been popular since the last decade; as a result, 70-80% of the large firms are already on the ERP system. Now, many of the multinational firms are restricting their business to partners who have the same ERP. For example, a firm in Small and Medium Enterprises (SMEs) sectors, with an annual turnover of Rs. 120 million and was

Planning to implement an ERP system, where they have to spend Rs.12.5 million, i.e. more than 10% of the

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turnover. The reason being one of the partners had the ERP package and was asking the other to implement the same. Leading ERP software vendors:
1.

SAP: Sap is a German Company having a large share of ERP software. (SAP R/3) BaaN: The Baan Company operates from the motherland as well as from USA. (Baan IV) (Mento Park - California).

2.

3. Some of the other companies in ERP software package are:

(i)

People soft Oracle ID Edwards Gartner

(ii) (iii) (iv)

(v) (vi) (vii)

(viii)

Scala Ramco Marshal SSA (Systems Software Associates) QAD (MFG/PRO) etc.
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THE ERP DOMAIN Companies like, SAP AG, Baan, Qad, IFS, Ramco systems, to name a few of the leading vendors, leave no stone unturned to capture this holy grail. SAP Introducing SAP SAP was founded in 1972 and has grown to become the worlds fifth largest software company. SAP is both the name of the company and the computer system. The SAP system comprises a number of fully integrated modules, which cover every aspect of business management. The system has been developed to meet the increasing needs of commercial and other organizations that are striving for greater efficiency and effectiveness. They offer a unique system that supports nearly all areas of business. SAP provides the opportunity
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to replace large number of independent systems that have been developed and implemented in established organization with one single modular system. Each module performs a different function, but is designed to work with other modules. It is fully integrated, offering true compatibility across business functions. SAP is a German company but operates all over the world, with 28 subsidiaries and affiliates and six partner companies maintaining offices in 40 countries.

SAPS MARKET SAP markets its products all over the world to almost every industry imaginable, as well as to government and educational institutions and hospitals. The following is a list of industries served by SAP: Raw materials, mining and agriculture Oil and gas

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 Chemical Pharmaceuticals Building materials, clay and glass Building and heavy construction Primary metals, metal products, steel Industrial and commercial machinery Automotives industry Ship-building, aerospace, and train construction Transportation services and tourism Electronic/optic and communication equipment Wood and paper Furniture Consumer packaged goods-foods Clothing and textiles Retail and wholesale trading Communication services and media Storage, distribution and shipping Utilities Financial services, banks and insurance
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 Government, public administration, and services. Museums and associations Health care and hospitals Educational institutions and research Consulting and software Services.

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ADVANTAGES / DISADVANTAGES ADVANTAGES OF ERP ERP enables enterprises to look at it self inwards as well as outwards towards markets. The organization has better insight into its own policies, systems and procedures. The organization is also able to look at the inefficiencies, bottlenecks, and deficiency in communication across various functions. ERPs strength lies in its ability to provide information that it up-to-date, instantaneous, and comprehensive to all segments. Some of the benefits of ERP system are as follows:
1.

Availability of informations that are: (i) (ii) Up-to-date Uniform

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(iii) (iv)

Comprehensive Integrated

2. ERP software emboids the best practices followed by corporations across the world. 3. Facilitates to take appropriate decisions with speed and accuracy. 4. Integration of workflow to enable to respond quickly and appropriately to market demand and situation and to attend customer.
5.

Increase of inventory turnover

6. Reduction in Cycle time 7. Reduction of work in progress inventory 8. Reduction in lead time 9. On time delivery 10. 11. 12. Enhanced customer satisfaction Reduce quality cost Improved resource utilization forms a High performance starts moving on the path of team structure
14. Enterprise

13. Enterprise

integrated system
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15.

Enterprise starts building new relationship with

external organization and becomes an extended enterprise. DISADVANTAGES OF ERP 1. Lack of integration with non-ERP systems 2. System inputs lack logic and are complex at times 3. After the project is over the vendor is no more associated with the project and there is very less or limited help available in case the client needs any. 4. The reporting systems are not adequate. It is very difficult to extract data from the sources and there is a requirement of additional tools in the form of business intelligence software.

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WHY TO MODEL THE ENTERPRISE More agile enterprise Helps in eliminating redundant or non-value added activities.

More efficient system after being enabled by IT. 1. Information 2. Material 3. Money 4. Control 5. Intangibles, such as customer satisfaction & quality improvement

Stream lines 5 important flows in the enterprise.

Empowerment of employees to take action

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FUTURE GROWTH DRIVERS OF ERP The future growth of ERP vendors will depend on the SMEs. In any country, SMEs are the largest contributors to the economy. This year, if we see in India, the SMEs have made a huge contribution to the IT industry. The Business Process Outsourcing (BPO) industry is a classic example of the success of SMEs. It is now that the bigger firms are thinking of moving into this industry since the capabilities of SMEs are limited. When we say capabilities, we mean capabilities in terms of financial resources, skilled labor with knowledge of processes. The vendors understand these and are trying to come out with new strategies such as the ownership of the system to be shared by a group, providing web-based applications, providing scalable models, etc. These will help to bring down the total cost of ownership. In addition, the implementation will take place in steps. So, it would mean deployment of resources in phases and this
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will give a chance to correct any problem detected during the initial stages.

THE NEED TO QUANTIFY ERP BENEFITS The cost of ERP is 3-7 times more than that of purchasing the software license, which is already very high. License cost of a SYSTEM ANALYSIS AND PROGRAMME DEVELOPMENT (SAP) R/3 is between $ 1-5 mn. The total cost required to implement ERP can be as high as $14.5 mn. Due to this, there is a lot of customer dissatisfaction. There is a need to clearly quantify and work out a ROI in the beginning of the installation itself. Many of the companies have reported dissatisfaction about the performance of ERP system after its implementation. To avoid this, it is necessary to identify and quantify the benefits of ERP implementation right in the beginning. This can be carried out by setting the required objectives and goals. It is equally essential to ask questions related to those objectives and goals.
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TABLE: ERPs Goals and objectives Objective Questions to be asked Improved customer How, how much and satisfaction. Decrease inventory. when? How, how much much much much and and and and

when? Shorten order-to-delivery cycle How, how time. when? Reduce material cost through How, how improved. Vendor management. when? How, how when?

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ERP COST BENEFIT ANALYSIS To Zero in on a particular strategy, it is very important to conduct pre-implementation ROI analysis. Many people are of the view that ROI on ERP is very difficult to calculate. ROI calculation may not be science, but in the end, we need to know the benefits accrued that outweighs the cost involved. The benefits might be tangible and intangible. A rough estimation shows that the percentage of tangible and non-tangible benefits could be 50-50%. To measure the intangible part there are measures available, but there should not be speculative measures to measure the same. Companies that actually measures ROI report a significant performance improvement. Majority of the customers believe that ROI is difficult to measure. Now what is very hard to measure? The intangible part of returns and cost seems to be too hard to measure. On the investment side, the cost of the software, maintenance, up gradations, customization can be measure. The intangibles on the cost side could be the actual cost of the workforce
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that can be taken as weighted Cost of labour needed to install and customized the system. To make cost benefit analysis of an ERP system there is a need to study the areas. The following are the measure cost of ERP systems. Implementation cost This would include items such as software licenses and hard wares such as servers, network upgrades, support and maintenance contracts, training personnel, ongoing support and administration cost, customization and development cost. Personnel Cost The cost attached to personnel is almost as high as the license cost. There is a lot of internal human resource attached to ERP. As there is a shortage of trained labour for such specialized application, firm employees, who gain experience in such an implementation, are in great demand. Consequently, there is a increased chance of employee turnover. Considering the fact, the company has to assign
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employees to represent different functional group and, these are the people who understand the processes deeply. On the other hand, people handling some or the other functions are now dedicated completely for ERP implementation; it puts pressure on remaining employees also. The implementation team can be anywhere ranging from 50 to 150 people, depending on the size of the firm, no. of locations and the no. of functions. The other aspect is that a large amount of resources spent on employee training and this, in turn, may call for change management and business process reengineering (BPR). To avoid such costs, it is very important to have a clear understanding of the functionalities, a quick move to exploit the complete functionalities and to add as many users as possible. This will bring down per user cost and the benefits can be achieved fast. Costs, such as user training, change management, etc., can be measured by using surrogate measures. The other costs could be budget overruns, functionality shortcomings etc.

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Savings can be categorized under 4 different headings. They are IT staffing, Productivity, Operational efficiencies and Revenue Improvements. The overall benefit side includes operating efficiencies that help the company improve productivity, redeployment of manpower, better capital utilization, reduction in inventory levels, improved order to delivery cycle time, better control and increased certainty in decision making. Intangible benefits would mean greater reliability of the firm. Talk with different users and find out what amount of time is saved now, because not all time saved will be used productively. There will be a reduction in people required to monitor systems, operations related savings such as time saved on e-mails and phones, saving in travel costs for meetings.

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ERP Evaluation An Alternate Approach

ERP offers many opportunities for ROI calculation. The problem is that only a few companies actually do an ROI study for purchases, up gradation or customization. In addition, there is a limitation to the traditional tools being used for the ROI calculations. Therefore, there is a need to find out different tools and techniques. There were some methods that were proposed by different people. One of the methods that were proposed by different people. One of the methods being "Assessing the value provided by ERP applications through organizational activities" by Arik Ragowsky, Toni M "Somers and Denis A Adams through their paper in "Communication of the Association for information Systems". They selected companies that have all the five Porter's value chain elements. They have devised a research design where in they have asked for the impact of information systems such as inventory management, project management and customers orders budgeting on different aspects such as: Inventory holding cost Retention of customers Reduction in cost of after sales services The methodology used has been conducting personal interviews with senior manager of each organization. The study is more focused on the value provided in terms of subject perception and the benefits that the organization derived out of the use of specific individual IT applications to ERP.

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The longitudinal dimension is used to study the relative performance of firms before, during and after implementation to examine how the effects of ERP implementation appear over time. These studies will always indicate a positive outcome, but initial question s like how much, when, are not answered. If we are to conduct a pre-deployment ROI analysis (to be more realistic probability of achieving those returns and payback period can also be taken into account) to evaluate expected returns and costs then comparison studies will not suffice. A suitable strategy would be to pick up few companies from different industry verticals and conduct interviews with actual users across different functions. The drawback with the questioner method is that such studies will have very low feedback and a single form would be filled by one person, so it is very unlikely that he has in depth knowledge of the impact of ERP on all functions. We feel that the balance scorecard approach would be the best approach.

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WHERE ERP COMES IN

ERP is a result of modern organizations attitude towards how their information systems are to be configure to the new business focuses. Merely automating systems is no longer the cure. The major bottleneck is getting to build software and system solutions for emerging BPR needs is integration. Disparate elements of the organization have to be linked together so that whenever a change in an external pull takes place, the enterprise is able to adjust to it immediately and effectively. The trend today is that many organizations are changing from function oriented businesses to process driven entities. ERP systems enable this to happen. The areas of ERP deals with manufacturing as well as with finance. For an ERP solution, human resource is as relevant to the whole scheme of things as distribution. In fact, the various vendors who provide ERP solutions do so in a modular manner. ERP packages are mostly built on the Objective Oriented Programming (OOP) approach.

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BUSINESS MODELING IN PRACTICES

Most of the ERP packages available today facilitate flowcharting these processes using standards symbols. For example, SAP uses the Event Driven Process Chain (EPC) methodology. By connecting all the users, event, task/function, organization information, they can analyze even very complex business processes. In addition, these ERP packages also provide standard template for each of the processes, the idea being that the difference between the template and the actual process can be easily identified. The business model also plays a very important role in selecting an ERP package as it becomes possible to identify how the package actually fits the business model under consideration. At the time of actual implementation, a suitable data model and a MIS report substantiate the process model. By suitable analysis of the data model, process and MIS requirements, a standard data model is provided by the ERP package. It is thus, obvious that business modeling is the base for successful ERP package selection and implementation.

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ROLE OF CONSULTANTS, VENDORS AND USERS

Initially, organizations were skeptical about ERP since they felt that their businesses were unique and their cultures differ. As time passed and their business problems became more pressing, they started looking at ERP as the solution to their problem. In their urgency, they were expecting miracles. Unfortunately, this doesnt happen most of the time. Leads to poor participation and costly delays. It is important to understand that an ERP package cannot fit in completely with the existing business practices of an organization. In order to avoid setbacks in an ERP project, a consultant plays a useful role. The consultants by virtue of their industry, experience and package expertise should pitch in and set the expectation of the user at various levels keeping in mind the overall business objective of the client. They can do so by working closely with key users, understanding their needs, analyzing the business realities and designing solutions that meet the basic objective of the company. An ERP package is expected to improve the flow of information and formulize all the business processes and workflow that exist in an organization. Many users expect their workload to decrease after an ERP implementation, but this may not always happen. If one has to have more information in assistance, it entails more work from some users, but the benefit is that this information is properly stored, flow of information throughout the organization improves, the company starts performing better, and this in turn benefits the users who have collectively improved their way of working.

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EXAMPLE OF AN INDIAN ERP PACKAGE

During the 1990s, many Indian software companies developed ERP packages which were sold and implemented at hundreds of companies across India. Some of these packages have even been successfully implemented overseas. Sara ERP is one such package from Mumbai based Sara InfoTech. The company was established to create software products that would compete globally in terms of quality, functionality and cost. Today, this company has developed over a dozen packages, including flagship package Sara Intelligent Enterprise Management System (Sara IEMS). Sara IEMS is a comprehensive ERP III package, comprising ERP, CRM, SCM, Business intelligence and Interface with various equipment and instruments, all in one single application and one database. Sara IEMS modules can also be integrated with other Enterprise applications such as SAP, BAAN, J D Edwards, Siebel and PeopleSoft. Sara started developing its ERP package in 1995 and it was ready by 1999. Later it developed CRM, Business Intelligence, Interface with DCS, SCADA and other equipment, instruments, meters, etc. Sara has also enhanced its ERP package for certain verticals like hospitals, hotels, insurance, etc. to take into account their front-office functions. Sara ERP has `been successfully implemented in diverse companies in India, Thailand, Indonesia, Malaysia, and other countries.

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Based on the needs of the organization and understanding of the criteria that the customer will look at before buying ERP system. Here are some criteria based on which the company takes the decision regarding selection of ERP systems.

Criteria for ERP system Services 14% 14% 11% 18% Technical architecture 22% 21% Ability to execute Vision Cost Function

CONCLUSION
The ERP is not a total solution to operational and strategic concerns. It is meant for optimal utilization of organizational resources from man to machine, finance and materials. It is not the ultimate solution to all the problems. It is meant to accurately track the processes for disciplined usage
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of the resources. It cannot be a solution to the customer services problems, quality problems. For such issues, ERP provides a base for implementation of specific solutions such as supply chain management, product life cycle management and customer relationship management. That is why it is very important for SMEs to understand the role of ERP, because that will them the power to take decisions on ERP, either single vendor or best of the breed kind of applications and to what extent. The reasons for implementation for ERP, is that a firm would like to consider the four perspectives: Financial Perspective. Customer Perspective. Internal Perspective. Innovation ad learning Perspective. This can be translated to ERP effectiveness parameters that can be measured through KPI's.

BIBLIOGRAPHY

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 Production and Operation Management, Khandelwal, Gupta, Jain, Ajmera Book Co. Jaipur, First Edition: Jan07 Part 2, Chapter 13. E-Business, The icfai University Press Dec 2007. Pg. 37-44. Enterprise Resource Planning Concepts and Practice, Vinod Kumar Garg, N.K. Venkitakrishnan, Prentice Hall of India Pvt. Ltd. New Delhi, Second Edition: Jan03.

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