ERP Basics,

Business Functions and

Processes

Introduction to ERP:
Software solution that address the
enterprise needs taking the process
view of an organization to meet the
organizational goals tightly
integrating all functions of an
enterprise.

 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.
In other words ERP software supports the
efficient operation of business processes
by integrating activities throughout a
business, including sales, marketing,
manufacturing, logistics, accounting and
staffing.

 What Is an Enterprise?

A group of People with a common goal, which has certain

resources at its disposal to achieve this goal.

Different from traditional approach due to A common goal.

Due to this the Enterprise acts as a Single Entity

 Traditional approach:

Integrated approach.

Functional areas and Business Processes:

Before understanding ERP and its utility one must
understand how a business works.
Functional areas of Operation:

 To take the customer perspective further suppose

the PC stops working with in the guarantee period.
To repair and return the PC to customer is a
Business Process and several functional areas are
involved in this process.
A successful customer interaction in such case
would be that the customer is not required to
interact with each business function involved and
his interaction with CRM would be sufficient to
initiate the entire process of repair and return.
A successful business managers view their
business operations from the perspective of a
satisfied customer.
To achieve above Integration & internal
customer- supplier relationship is a must.

 Business Modeling :
Creating a business model is the first activity in any
ERP project
It is a representation of business as a large system,
showing the interconnections and interdependencies
of the various sub-systems and business processes.

 Integrated data model

The most critical step in ERP implementation is the creation of
integrated data model.
With ERP on ground , isolated departmental information
systems and departmental data bases will have to go
integrated
Thus reduction in data duplicacy and every one gets chance to
have updated and up to minute information about the entire
organization.

 For Integrated data model to be effective it should clearly

depict the organization,
It should reflect the day to day transactions and to be
updated continuously.
So if :
order is entered the sales are done the
goods are dispatched,
then :
the database should
capture these changes to show that the activities are
performed and with the required details such as name of the
party, quantity sold, sale price, quantity dispatched, truck no
etc,
and also
the inventory to be reduced &
account receivable is to be increased
& All these things have to happen instantaneously and
automatically and with high accuracy, so that the model
gives real time status of the business activities.
This is the challenge and the advantage of the integrated
database and the integrated data model.

Common ERP myths:

1. ERP means more work and Procedures:
1.
2.
3.

Only during the transition phase,

Proper communication and training to employees help a lot
Once used to new system employees appreciate the advantages as their life become
much easier

2. ERP will make employees redundant and jobless:

1.
2.
3.

ERP automates many repetitive tasks, avoids unnecessary procedures

There would be change in job descriptions
Creates new job opportunities and employees can be trained for these jobs.

3. ERP is sole responsibility of Management:

1.
2.

Managements main : to create environment suitable for ERP implementation and

functioning
Making ERP system work is the responsibility of all the employees as it is People system.

4. ERP is just of Managers and Decision makers:

1.
2.

5.
6.
7.
8.
9.

Most useful for Managers and decision makers

All employees can use is to advantage due to regularized employees records of leave,
loan etc

ERP is for Manufacturing organizations:

ERP slows down the organization:
ERP is just to impress customers
ERP package will take care of everything
One ERP package will suit everybody

10. ERP is very expensive:

1.

Money spent on ERP are well spent and the ERP system will pay for itself.

11. Organizations can succeed without ERP:

servicing niche market.

Evolution of ERP:

Only very small organization

MRP

Manufacturing-centric/Push mgt.
Master production schedule
Final production schedule
Inventory management
Bill of materials
Gross requirement generation
Net requirement generation
Reorder point calculation
Automatic replenishment

MRP I I

Capacity requirement. planning

Production control
Marketing interface
Accounting interface
Financial interface
Personnel interface
Supplier interface
Customer interface

ERP HISTORY IN DEPTH

The first software that was designed to
assist the manufacturing process
happens to be the MRP (Material
Resource Planning) in the year 1975.
This was followed by another
advanced version namely MRP2 which
is the for Manufacturing Resource
Planning.
None of them yielded benefit of ERP.

ADVENT OF ERP
ERP came into being with effect from
1990. Though ERP existed from the
year 1960 in the form of MRP1 and
MRP2.
Infact MRP2 was more or less ERP
except for its inability to coordinate
departments other than marketing.
The whole period from the year 1960 is
denoted as the age of ERP.
The benefit of ERP was slowly felt from
this stage onwards.

 There are three basic sides to ERP

management , People (69%),
Processes (18%) and
Technology (13%), and risk of
ERP by them are mentioned in
brackets

 People
Project Structure
Should be aligned to processes

Process
Implementation Process (outlined in detail)
Adapt your processes to those of the ERP.

Technology
Hardware
Software
Integrated Systems

Advantages of ERP:
1. Improved efficiency
2. Information integration for better decision making, flexibility
3. Faster response time to customer queries
4. Cost reduction
5. Better analysis and planning capability
6. As a base for future reforms
7. Simplification of Business Processes
8. Compliance and Control
9. Enable New Business and Growth strategies
10. Continuous Improvement
11. Extend your business using internet

Chapter 2
Issues in ERP

A) Data Warehousing ( for integration and

management):
Effective data management is the foundation for successful ERP
implementation.
Data warehouse is a collection of data designed to support decision
making process. Data warehouses contain a wide variety of data that
present a coherent picture of business conditions at a single point in
time.
Developing a data warehouse involves development of systems to
Extract data from operating systems
Installation of a warehouse database system to safely store data
Interconnecting / combining many different such databases across the entire
enterprise
Providing managers flexible access to data from the above combination of
data warehouses for business analysis and effective decision making.

The primary goals of a data warehouse are:

1. Provide access to data of an organization
2. Data consistency
3. Capacity to separate and combine data
4. Inclusion of tools setup to query, analyze and present information
5. Published used data
6. Drive business reengineering

Data in data warehouse: The collection of data by

data warehouse may be characterized as
Subject Oriented : eg data about customer, product, transaction, activity,
account etc
Integrated : A data warehouse can potentially receive data from number of
resources . The filtering and translation necessary for one consistent data base
is known as integration. (eg bottles/ crates)
Non volatile : Data can be loaded and accesses but can not be changed ( No
Back end correction)
Time variant: The data is clocked with time element of operational system.

Data Warehouse Architecture:

The components of data warehouse as given by W.H.

Inmon , father of data warehouse concept, are:
1. Operational systems of Record The source of data that
feed the data warehouse. It differs from the operational data that it
can be read only but can not be changed. It has to be of the
highest quality meaning most timely, complete, accurate and
having best structural conformance to the data warehouse, often
these data are closest to the source but in other cases it can be a
already summarized data, Data capturing can be automated or
manual
2. Integration / Transformation programs- To perform
functions required for meaningful integration of data, such as:
1. Reformatting, recalculating, restructuring
2. Adding time element
3. Identifying default values
4. Supplying logic to choose between multiple data sources
5. Summarizing, tallying and merging data from multiple sources

3. Current detail It is the lowest level data granularity in the

4.

5.

data warehouse. It when organized as per subject area

represents the entire enterprise. Every entity in current detail is a
snap shot, at a moment in time, representing the instance when
the data are accurate. Current detail is typically 2 to 5 years old
and its refreshment occurs as frequently as necessary to support
the enterprise requirements.
Archives Contains old data of significant, continuing interest
and value to the enterprise, normally 2 years or more old. Most
often used for trend analysis, forecasting. It includes not only old
data but also the metadata.
Metadata Data about data : The physical implementation
of a data warehouse is defined using a naming convention and
syntax rules which may be convenient to IT staff, can be obscure
to business users. Hence a separate data definition language is
implemented which provides a meaningful description of the
information contents. Many products implement an effective
metadata layer and users define their requirements in terms of
meaningful real world descriptions. Unfortunately , due to lack of
standardization, sometimes this may create a problem for data
integration between two different data systems.

6. Summarized Data: Classified into lightly summarized

and highly summarized:

Lightly summarized data are hallmark of a data warehouse. All

enterprise elements such as department, region, function, product do
not have the same information requirements, hence provision is made
for element wise customized summarization of data called the lightly
summarized data.
Highly summarized data are primarily for enterprise executives. It can
come from lightly summarized data or current detail. Data volume at
this level is much less than at other levels and represents an eclectic
collection supporting a wide variety of needs and interests.
In addition to access Highly summarized data, executives also have the
capability of accessing increasing levels of detail through a Drill
Down process.

Uses of Data Warehouse:

1. Standard reports and Queries- Many users need to access
such standard reports periodically. Data warehouse system can be
made to automatically periodically generate such reports and users
need to just view them rather than running it themselves which
may be time consuming as some reports take long time to run.
2. Queries against summarized data:- As explained above,
summary views contain predefined standard business analysis.

Uses of Data Warehouse: Contd

3. Data Mining- The reports and queries answer many What?
questions in the business. The drill down into detail data provides
answers to Why? and How? questions. Data mining is an
evolving science. A data mining user starts with summary data
and drills down into the detail data looking for arguments to
prove or disprove a hypothesis. One of the important field of
application of Data Mining is the field of consumer behavior
research.

Uses of Data Warehouse: Contd

4. Interface with other Data Warehouses: A data
warehouse may feed data to other data warehouses or smaller
data warehouses called data marts

B) ERP Implementation:

Funct

Funct

Funct

Funct

Funct

Funct

Functional area information

systems:
Let us now look into
1.The breakdown of each functional area in
detail of the various sub functions
2. The kinds of data needed by each
functional area and how the data is
being used.
Also let us try to understand the
information systems relationships
between each
functional area and process

Marketing and sales:

Supply chain management:

Accounting and Finance:

Human Resources:

Types of Organizational
information Systems
Administrative systems
Scheduling / Transaction systems
Value oriented systems
Reporting and controlling systems
Analysis and information systems
Planning and decision support systems
(From Business Process Engineering by
A.W. Scheer)

Problems with function based

application

Sharing of data between systems

Data duplication
Data inconsistency
Applications that dont talk to one another
Limited or lack of integrated information
Isolated decisions lead to overall
inefficiencies
Increased expenses

Solution to disparate systems?

Integration
Consolidation
Right-sizing
Business Process Redesign
Enterprise wide system

Integrated systems
or
Enterprise Resource Planning
System

ERP - Definition
ERP is a process of managing all
resources and their use in the entire
enterprise in a coordinated manner

ERP system: Definition

ERP is a set of integrated business
applications, or modules which carry
out common business functions such
as general ledger, accounting, or
order management

What is ERP?
Enterprise Resource Planning
Support business through optimizing,
maintaining, and tracking business
functions
Broken down into business processes
HRM
Distribution
Financials
Manufacturing

What makes ERP different

Integrated modules
Common definitions
Common database
Update one module, automatically
updates others
ERP systems reflect a specific way of
doing business
Must look at your value chains, rather
than functions

Benefits of ERP
Common set of data
Help in integrating applications for
decision making and planning
Allow departments to talk to each other
Easy to integrate by using processed
built into ERP software
A way to force BPR (reengineering)
Easy way to solve Y2K problem

Vendors

Difficulty in implementation
Very difficult
Extremely costly and time intensive
Typical: over $10,000,000 and over a
year to implement
Company may implement only
certain modules of entire ERP system
You will need an outside consultant

Common Pitfalls
Do not adequately benchmark
current state
Did not plan for major transformation
Did not have executive sponsorship
Did not adequately map out goals
and objectives
Highly customized systems to look
like old MRP systems

Survey of ERP
implementations
Done by ittoolbox.com in
2004

Overview
375 IT and business professionals
52% anticipate budget increases for new
ERP implementations/new modules
SAP and PeopleSoft/J.D. Edwards were
cited as the most popular ERP packages
46% indicated that the main challenge to
successful ERP implementations was
inadequate definition of requirements
and resistance to change

How would you characterize your budget for new ERP

implementations/new modules deployments for 2004
compared to your budget in 2003?

Who is directly responsible for

determining your ERP
implementations/new modules
deployments?

Who are the other key decisionmakers/influencers in decisions to add

new ERP packages/new modules?

Do you currently have an

ERP package?

If your answer is "Yes", which ERP

package(s) do you currently use?

Are you considering adding new

modules to your existing ERP package?

If your answer is "Yes", which modules

are you planning to add?

If you plan to deploy a new ERP

package and/or add modules to your
existing packages, when would this
implementation take place?

Who do you partner with for new ERP

implementations and additions of new
modules?

What do you see as the main

challenges to successful ERP
implementations within your
organization?

For more details

http://projectmanagement.ittoolbox.c
om/documents/research/