ICICI BANK

Enterprise Resource Planning

01. EnterpriseAn Overview

What is an Enterprise?
An enterprise is a group of people with a common goal, which has certain resources (people, money, energy, materials, space, time) at its disposal to achieve this goal. Examples: IBM, Ford, Tata Motors, Accenture, Microsoft, Indian Railways, Ramus Teashop, etc. The enterprise acts as a single entity. The resources are considered the inputs, and the attainment of the goals the output of the process. The degree of success of the enterprise is often measured by the ratio between the outputs and inputs. This ratio is called productivity.

Enterprise

People

Resources

Goals & Objectives

The Enterprise

Traditional Organization
The organization is divided into different units based on the functions they perform - finance, manufacturing, production planning, purchasing, sales and distribution, R&D, HR, etc. The various departments have their own goals. The different departments function in isolation and have their own data collection & analysis systems.

Traditional Organization
The result is that, instead of taking the organization towards the common goal the various departments end up pulling it in different directions as one department does not know what the other does and for what purpose. So unless all the departments know what the others are doing and for what purpose, the inter-departmental conflicts will arise thus disrupting the normal functioning of the organization. The solution is to have a centralized information storage and management facility.

Enterprise Way
In the enterprise way, the entire organization is considered as a single system. Information about all the aspects of the organization is stored centrally and is available to all departments, thus avoiding conflicts. ERP systems help to make this task easier by integrating the information systems, enabling smooth and seamless flow of information across departmental barriers, and automating business process and functions. ERP systems help the organization to work and move forward as a single entity.

Enterprise Way

Production Planning

Finance

Marketing

Central Database

R&D

Production

Sales & Distribution

An Enterprise where all Departments Know what others are Doing

Business Function
Organizations that make products to sell have the following functional areas of operationpurchasing, production and materials management, marketing and sales, accounting and finance, human resources, etc. Each functional area comprises a variety of business functions and business activities within that functional area of operation. Earlier business systems functioned in isolation. What happened in one functional area was not communicated with other functions. The information system of one function had no impact on other functional areas. This mode of functioning caused many problems including disruption of the functioning of the organization.

Function vs. Process

Recently organizations have started focusing on business processes rather than business functions. A business process is a collection of activities that takes one or more kinds of input and creates an output that is of value to the customer. The difference between a BF and a BP is that a process cuts across more than one business function to get a task done. Organizations are now trying to view their business operations from the perspective of a satisfied customer. Sharing data effectively and efficiently between and within functional areas leads to more efficient business processes.

Function vs. Process

Information systems can be designed so that accurate and timely data are shared between functional areas. These systems are called integrated information systems. For a company to provide customer satisfaction, it must make sure that its functional areas of operation are integratedone department should know what the other departments are doing. For example the people in sales and marketing should know the up-to-date details of the latest products, their prices, their features and so on so that they can provide this information to the customers.

Function vs. Process (contd)

Similarly, the people in the manufacturing plants should know which models are being ordered in large quantities so that they can buy the necessary materials and start manufacturing those items to deliver to the customers. This type of inter-departmental information sharing through the use of integrated information systems will help the organizations in achieving customer satisfaction while improving their productivity and efficiency.

Business Process
Business Process is a collection of interrelated tasks, which solve a particular issue. There are three types of business processes Management, Operational, and Supporting Management processes govern the operation of a system. Typical management processes include corporate governance" and strategic management". Operational processes create the primary value stream andare part of the core business. Typical operational processes are purchasing, manufacturing, marketing, and sales. Supporting processes support the core processes. Examples include accounting, recruitment, IT-support.

Business Process (contd)

A business process can be decomposed into several subprocesses, which have their own attributes, but also contribute to achieving the goal of the super-process. The analysis of business processes typically includes the mapping of processes and sub-processes down to activity level. Activities are parts of the business process that do not include any decision making and thus are not worth decomposing such as answer the phone", "prepare the invoice, send the fax, etc.

Information Systems
Information is refined data. An information system consists of three elementspeople, procedures, and data. Information activities are find, create, receive, acquire, monitor, classify, safeguard, organize, use, publish, collaborate, disseminate, archive, dispose, transfer, etc. Management information system (MIS) produce information products that support many of the dayto-day decision making needs of the management. The problem with traditional MIS is that they operate at a departmental level and they give only information that has been pre- defined.

Information Systems
Traditional information systems fail to capture the information needs of the entire organization as they concentrate on capturing department level information isolated information gathering. No decision-maker can take good decisions with the isolated information that they get from the information produced by individual departments.

Information Islands
No organization can function as islands of different departments. All the departments should have access to the organizations information. In todays competitive business environment, the key resource of every organization is information. If all the information islands, which are functioning in isolation, are integrated into a single system, the impact of that would be dramatic. If the organization does not have an efficient and effective mechanism then the chances of that organization succeeding are very remote

Integrated Management Information

The three fundamental characteristics of information are accuracy, relevancy, and timeliness. To survive, the organization must always be on its toes, gathering and analyzing the databoth internal and external. Any mechanism that will automate the information gathering and analysis process will enhance the chances of the organization to beat the competition. What is needed is a system that treats the organization as a single entity and caters to the information needs of the whole organization.

Integrated Management Information

If this is possible, and if the information that is generated is accurate, timely and relevant, then these systems will go a long way in helping the organization to realize its goals. Integrated management information provides the decision makers with accurate, relevant, timely, and up-tothe minute information so that they can make better and informed decisions much faster. Integrated management information will enable the organization to become more competitive, agile and respond quickly to the changes in the business environment, customer interests and trends.

Role of Enterprise in ERP Implementation

ERP implementation project an enterprise in its own right. Common goal: successful implementation of the project Resources: ERP package, hardware, money, people, etc. People: Employees, management, consultants, ERP vendors, etc.

Role of Enterprise in ERP Implementation

Organizations Responsibilities: Own and sponsor the ERP implementation project (usually done by the CEO, CIO, COO, or someone senior) Designate the right people to lead the project. Select and assign the right people to the implementation team Select the ERP package best suited for the organization Make available the necessary infrastructure (resources) Ensure top management support and participation Manage package vendors and external consultants

Role of Enterprise in ERP Implementation

Organizations Responsibilities: Manage and deal with employee resistance Motivate the employees to change and to learn new technologies Re-train and re-locate employees and ensure the complete participation Operate the ERP system in the best possible manner Maintain the ERP system at its peak efficiency

Business Modeling
Business modeling or creating a business model is one of the first activities in any ERP project. ERP systems should mirror the business processes. A business model is a representation of the business as one large system, showing the interconnections and interdependencies of the various sub- systems and business processes. Based on the organizations goals, objectives and strategic plans, a business model consisting of the business processes is developed.

Business Modeling
Based on the business model, the ERP system is developed with the aim of providing the required information and necessary assistance to the various individuals to perform their business processes more effectively and efficiently. The business is modeled as an integrated system. Information is a very important resource and is very critical in managing all the other resources. The business model is usually represented in the graphical form using flowcharts and flow diagrams.

Business Modeling (contd)

Real World

Processes

Interrelationships & Interdependencies

Plant Material

Business Model

Custom er Order

Contract Invoice Real-world and Business Model

Integrated Data Model

The most critical step in the ERP implementation is the creation of an integrated data model as all the employees from the different departments get access to the integrated data and this will help in better decision- making. With the implementation of ERP systems all the data will be from the integrated database. Maintaining and managing the integrated data constantly updated and up- to-date is one of the biggest challenges of ERP implementation and operation.

Integrated Data Model

The integrated database will reduce data redundancy and give all employees access to the updated and up-to-the minute information about the entire organization. When designing the data model for the ERP system, the most important thing that should be kept in mind is the information integration and the process/ procedure automation. The data model should reflect the entire organization and should successfully depict and integrate the data structures of the entire organization.

Integrated Data Model

Real World

Processes

Interrelationships & Interdependencies

Plant Material

Business Model

Custom er Order

Contract Invoice Data Model Tables Program Model Program Function

Data & Program Model

Data Model and its Relationship with the Real World

Fields View s
Display Screens, etc. Dom ains, etc.

02. Introduction to ERP

ERP Demystified (Second Edition) By Alexis Leon (2008)

What is ERP?
ERP is an abbreviation for Enterprise Resource Planning and means, the techniques and concepts for integrated management of businesses as a whole from the viewpoint of the effective use of management resources to improve the efficiency of enterprise management. ERP packages are integrated (covering all business functions) software packages that support the ERP concepts. ERP software is a mirror image of the major business processes of an organization, such as customer order fulfillment and manufacturing.

What is ERP?
ERP integrates all business functions into a single, integrated software program that runs on a single database so that the various departments can more easily share information and communicate with each other. The integrated approach of ERP has tremendous power and potential in improving the efficiency, productivity and competitiveness of the organization.

Common Myths about ERP

ERP means more work and procedures ERP will make many employees redundant and jobless ERP is the sole responsibility of the management ERP is just for the managers/ decision-makers ERP is just for manufacturing organizations ERP is just for the ERP implementation team ERP slows down the organization ERP is just to impress customers ERP package will take care of everything One ERP package will suit everybody ERP is very expensive Organizations can succeed without ERP

History of ERP
Origins in the manufacturing industry 1960s Inventory management and control systems 1970s Materials Requirement Planning (MRP) and Closed-loop MRP 1980s Manufacturing Requirements Planning (MRP II) 1990s Enterprise Resource Planning (ERP) 21st century ERP II

Inventory Management and Control

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.

Materials Requirement Planning (MRP)

Outgrowth of bill of material (BOM) processing Uses the master production schedule (MPS) to find out what products are going to manufactured. Gets the details of the materials required to make the products from the bill of materials (BOM). Searches the inventory records to find out what items are in stock. Calculates the items that need to be purchased for producing the goods. MRP solves manufacturing and production planning problems and made manufacturing of goods easier.

Closed-loop MRP
Merger of capacity planning techniques with MRP Tools developed to support the planning of sales and production levels, development of production schedules, forecasting, sales planning, capacity planning and order processing. Various plant, production, and supplier scheduling techniques for automating the processes inside and outside the organization, were built into the MRP system o create the closed-loop MRP. Closed-loop MRP is a series of functions for automating he production process. It contains tools and techniques to address both priority and capacity and supports both planning and execution.

Manufacturing Resource Planning (MRP II)

Evolved from closed-loop MRP Contains additional capabilities like sales and operational planning, financial interface and simulation capabilities for better decision-making MRP II is a method for the effective planning of all the resources of a manufacturing company Utilizes software applications for coordinating manufacturing processes, from product planning, parts purchasing, inventory control to product distribution.

Enterprise Resource Planning (ERP)

Fundamentals of ERP are the same as that of MRP II. ERP is broader in scope and is capable of dealing with more business functions and has a better and tighter integration with the finance and accounting functions. ERP is an enterprise-wide set of forecasting, planning and scheduling tools, which links customers and suppliers into a complete supply chain. The goals of ERP include high levels of customer service, improved productivity, cost reduction, better inventory turnover (just-in-time inventory), etc.

Enterprise Resource Planning (ERP)

ERP is more powerful because it applies a single set of resource planning tools across the entire enterprise, provides real-time integration of sales, operating and financial data and connects resource planning approaches, to the extended supply chain of customers and suppliers.

Reasons for the Growth of ERP

ERP improves business performance cycle time reduction, inventory reduction, faster response times, streamlined and faster order fulfillment, etc. ERP supports business growth requirements like new products, product lines, customers, multiple language and multiple currency support, etc. ERP provides flexible, integrated, real-time decision support ERP eliminates limitations in the legacy systems ERP takes advantage of the untapped mid-market of medium-sized organizations

Advantages of ERP
Business integration - ERP packages integrates the information processing and automates data updating (automatic data exchange among applications) between related business components. Flexibility - Diverse multinational environments such as language, currency, accounting standards, etc. are covered in one system, which makes the ERP systems very flexible.

Advantages of ERP
Better analysis and planning capabilities ERP systems enables the comprehensive and unified management of related businesses and its data. This unification makes it possible to fully utilize many types of decision support systems and simulation functions. Use of latest technology - ERP vendors uses the latest developments in the field of information technology. This technology adoption benefits the organizations using the packages as they get better products and with better capabilities.

Why ERP?
Why ERP? ERP offers solutions for all business functions Packages available for organizations of all sizes and types Global nature (multi-lingual and multi-currency support)

Over Expectations about ERP (One of the main reasons for failed implementations)

Insufficient pre-implementation preparation Lack of awareness among employees Lack of awareness among management about costs Wrong concepts about ROI and payback period

Successful ERP Implementations

Conduct Gap analysis to find out company requirements and the functions a package possesses. Select experienced and professional consultants Select the right package Select employees with the right attitude for implementation team Ensure that knowledge transfer happens between consultants and employees as well as between vendors and employees Ensure that there is enough in-house consultants and integrators during the operation and maintenance phase

03. Basic ERP Concepts

Introduction
ERP is a set of tools and processes that integrates departments and functions across a company into one computer system. ERP runs off a single database, enabling various departments to share information and communicate with each other. ERP is an enterprise reengineering solution that uses new business computing paradigms to integrate IT processes across a company's division and departments. ERP offers a means of effectively increasing and managing the required resources. For each resources ERP can identify what is required, when it is needed and how much is needed, thus making the operation of the organization efficient and effective.

Customizing ERP Packages to Suit the Companys Business

In many cases ERP packages have to be customized to fit the way in which the company does business. This will slow down the project, introduce dangerous bugs into the system and make upgrading the software to the ERP vendor's next release very difficult. In some other cases, the organizations business process have to changed, if they are inefficient. This will mean making changes in long-established ways of doing business and redefine the roles and responsibilities. This if not done properly, can create employee resistance.

Importance of ERP Systems

ERP is most important to companies because of their improvement in the way the company takes a customer order and processes it into an invoice and revenue (order fulfillment process). ERP systems makes the business process automated and more streamlined and makes the organization more agile and competitive so that it can respond to the changing customer needs and competition quickly and efficiently.

Importance of ERP Systems

Some of the characteristics of ERP systems are: It affects almost all organizations It forces the competition to change their business strategies and processes It influences business partners to become more competitive and agile It improves the profits of the organizations engaged in implementation consultancy It helps the business process reengineering process It enforces best practice business processes in organizations

Importance of ERP Systems

Some of the characteristics of ERP systems are: It fully utilizes the true potential of client / server computing and other latest technologies It changes the information systems function and job profiles of IT professionals It changes the nature of jobs in all functional business areas of the organization It is very expensive and its implementation is very costly and risky Its implementation is a long and complex project It requires the cooperation of all in the organization for succeed

ERP and Value Creation

ERP facilitates value creation by changing the basic nature of organizations in a number of different ways: It integrates the organizations activities It eliminates data redundancy It provides accurate, timely, relevant and up-to-date information to the decision makers It provides on-line and real-time information It enables better and faster decision-making It forces the use of best practices It enables organizational standardization

ERP and Value Creation

ERP facilitates value creation by changing the basic nature of organizations in a number of different ways: It eliminates information asymmetries It allows simultaneous access to the same data for planning and control It facilitates intra-organization communication It enables inter-organization collaboration It enables the organization to be more agile and competitive

04. Justifying ERP Investments

ERP Implementation and ROI

ROI analysis is becoming an important factor in influencing the organizations decision to acquire ERP packages. A demonstrable return on investment (ROI), is becoming a must for customers to invest scarce capital and human resources in ERP packages. ROI models fall short in their ability to accurately measure the total value of an enterprise software investment are they are focused only on quantifiable (tangible) measures of return.

ERP Implementation and ROI

The overall payback that enterprise software can offer to a company gives a more complete analysis of return. This analysis takes into account both the tangible and intangible benefits of the ERP systems. Intangible benefits include new business opportunities, improved customer and customer goodwill, better relationships with partners, suppliers and other business associates, improved time to market, etc. These intangible benefits contribute significantly to the success of a company's enterprise software implementation and use.

Payback Parameters
The overall payback that enterprise software can offer to a company gives a more complete analysis of return. The major key payback parameters are: Faster time to market Improved business processes Improved customer support Rapid capitalization of new business opportunities Lower implementation costs The sum of the parameters described by enterprise paybacktangible as well as intangibleoffers a much more complete picture of the value of the software and services provided by a given vendor.

Quantifiable Benefits from an ERP System

Reduced inventory costs (by at least 20%) Reduced inventory carrying costs (by 2530%) Reduced manpower costs (by 10% or more) Reduced material costs (by 5% or more) Improved sales (by 10% or more) Improved customer service resulting in savings of 5% or more Efficient financial management resulting in savings of 18% or more

The Intangible Effects of ERP

ERP provides a framework for working effectively together and devising a consistent plan for action. The ERP system improves the efficiency of many departments and functions including: Accounting Product and Process Design Production and Materials Management Sales MIS Function

Other Factors
Many other factors that should be considered while justifying ERP investments. Some of them are quantifiable while others are intangible. The major factors are: Lower implementation costs Lower production costs Lower business transaction costs Lower cost of reporting Lower personnel costs Lower business process change Lower enhancement costs Supporting and enhancing the customer experience Supporting and enhancing the partner experience Enabling new business opportunities

05. Risks of ERP

Risks of ERP
The implementation of ERP systems has been problematic for many organizations. The implementation of ERP systems can be a monumental disaster unless the process is handled carefully. Some of the well-known and well-documented failure stories are that of Hershey Foods, Whirlpool, Dow Chemical, Boeing, Dell Computer, Apple Computer, etc. Implementing an ERP project involves a certain amount of risk. The ERP system cannot be implemented in a totally risk free environment. The only thing that differentiates successful and flawed or failed implementations is the way in which the risks were anticipated, handled and mitigated.

Minimizing the Risks

Prepare wellMeticulously plan each every step of the implementation.

Have a contingency planThere will always be unexpected problems; you should have a plan for those situations. Use a proven methodologyA methodology will help ward off risk, but a contingency plan is still absolutely necessary.

Risks of ERP
ERP implementations are notoriously resource intensive, highly complex, time consuming and unpredictable in terms of cost and hence very risky. There are really three basic areas where problems can occurpeople, processes and technology. Of the three risk factors, people issues are the most critical. People issues contributed to failed implementations in 69% of the case compared to process issues (18%) and technological issues (13%)

People Issues
People employees, management, implementation team, consultants and vendorsare the most crucial factor that decides the success or failure of an ERP system. The main people issues are: Change management Internal staff adequacy Project team Training Employee re-location and re-training Staffing (includes turnover) Top management support Consultants Discipline Resistance to change

Process Risks
The ERP system will introduce hundreds of new business processes and will eliminate a lot of existing processes. Managing the implementation of the business processes is a factor that will decide success of the ERP implementation. The main areas of concern are: Program Management Business Process Reengineering Stage Transition Benefit Realization

Technological Risks
Keeping pace with the technological advancements is one of the very important issues that will determine the success of the ERP systems. Some of the technological issues are: Software Functionality Technological Obsolescence Application Portfolio Management Enhancement and Upgrades

Implementation Issues
Many ERP implementations fail because they do not consider the various implementation issues associated with a complex and risky project. Some of these issues are: Project Size Lengthy Implementation Time High Initial Investment Unreasonable Deadlines Insufficient Funding Interface Organizational Politics Scope Creep Unexpected Gaps Configuration Difficulties

Managing Risks
Ensuring a smooth ERP migration is complex and every implementation involves a certain level of business and technical risk. Managing risk on an ERP project is crucial to its success. A risk is a potential failure point. The 5 steps to managing risk are: Find potential failure points or risks Analyze the potential failure points to determine the damage they might do Assess the probability of the failure occurring Based on the first three factors, prioritize the risks Mitigate the risks through whatever action is necessary

Review Questions
Discuss why there are risks involved in an ERP implementation. What are the risks of the ERP implementation? Enumerate and discuss the people issues in an ERP implementation. Why are people issues considered as the most important risk factor of ERP implementations? Enumerate and discuss the process issues in an ERP implementation. Enumerate and discuss the people issues in an ERP implementation. Discuss the main implementation issues of an ERP project. What are the operation and maintenance issues of an ERP implementation? Discuss risk management in an ERP implementation.

06. Benefits of ERP

Benefits of ERP
Installing an ERP system has many advantages both direct and indirect. The direct advantages include improved efficiency, information integration for better decision-making, faster response time to customer queries, etc. The indirect benefits include better corporate image, improved customer goodwill, customer satisfaction and so on. Some of the benefits are quantitative (tangible) while many others are qualitative (intangible).

Tangible Benefits of ERP

Inventory reduction Inventory carrying cost reduction Reduction of lead-time Personnel reduction Cycle time reduction Productivity improvements Other management improvements Financial close cycle reduction IT cost reduction

Tangible Benefits of ERP

Procurement cost reduction Cash management improvements Revenue/profit improvements Reduced quality costs Improved resource utilization Transportation/logistics cost reduction Maintenance reduction On-time delivery improvements

Intangible Benefits of ERP

Information visibility New and improved business processes Customer responsiveness Improved supplier performance Better customer satisfaction Cost reduction Integration of business functions Information integration Better analysis and planning capabilities Improved information accuracy

Intangible Benefits of ERP

Improved decision-making capability Standardization of business processes Flexibility and business agility Globalization of the organization Better business performance Supply chain integration Use of latest technology

Review Question
Discuss the tangible and intangible benefits of ERP systems. Sometimes, the intangible benefits are more important than the tangible benefits. Discuss the above statement. Explain the various benefits of ERP implementation in detail.