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Overview of Enterprise Resource Planning (ERP)

Why ERP?

To Enhance Profitability

BY Increase in Sales And /OR Reduce Procurement Cost - Say by 5-10 % - Say 30%

An Example of Information Sharing Please Read Thru.. Take a customer order, for example. Typically, when a customer places an order, that order begins a mostly paper-based journey from in-basket to in-basket around the company, often being keyed and rekeyed into different departments' computer systems along the way. All that lounging around in in-baskets causes delays and lost orders, and all the keying into different computer systems invites errors. Meanwhile, no one in the company truly knows what the status of the order is at any given point because there is no way for the finance department, for example, to get into the warehouse's computer system to see whether the item has been shipped.

Business Before ERP

Orders Parts Sends report

Sales Dept.

Customer Demographic Files Checks for Parts Calls back Not in stock

Customers

Accounting Files

We ordered the parts

Accounting
Sends report Invoices accounting Sends report

Ships parts

Vendor Warehouse
Order is placed with Vendor
Purchasing Files

We Need parts #XX

Inventory Files

Purchasing

We ordered the parts

An Example: Order Fulfillment (Before ERP)

10 Business With ERP

Orders Parts Inventory Data If no parts, order is placed through DB

Customers

Sales Dept.

Accounting
Financial Data exchange; Books invoice against PO

Order is submitted to Purchasing. Purchasing record order in DB Order is placed with Vendor

Database

Books inventory against PO

Vendor
Ships parts

Warehouse
Purchasing

And invoices accounting

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An Example: Order Fulfillment (After ERP)

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ERP Definition
Enterprise systems are commercial software

packages that enable the integration of transactions-oriented data and business processes throughout an organization (and perhaps eventually throughout the entire inter-organizational supply chain). Enterprise systems include ERP software and related packages as advanced planning and scheduling, sales force automation, customer relationship management, product configuration, etc.

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What is an ERP ?
ERP stands for "Enterprise Resource Planning".

This type of system has evolved from earlier MRP and MRPII systems. ERP systems are IT systems which are meant to serve all the IT needs of an organisation/ company. Enterprise Resource Planning (ERP) is defined as a software architecture that facilitates the flow of information between all functions within a company such as manufacturing, logistics, finance and human resources

ERP Evolution (1)

ERP MRP II CL MRP MRP BOMP

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Beginning of Hierarchical Data Base

BILL OF MATERIALS

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BOM

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The BALL PEN MANUFACTURING Company & its business

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Manufacture PEN
Assumptions for the purpose of this case study: FINISHED GOODS (FATHER ITEM) = BALL PEN CHILD ITEMS = REFILL, CAP AND BODY ASSEMBLY IS CARRIED OUT IN SHOP FLOOR PRINTING OF NAME IS DONE AT PRINTERS LOCATION (THIRD

PARTY)

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B.O.M

BALL PEN MANUFACTURING COMPANY BOM shows relationship between father item and child item/s
Finished Goods

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BALL PEN

CUSTOMER

1 X BLUE REFILL

CCI CHALLAN CUM INVOICE

1 X CAP
1X BODY
Child items and quantity Material given out for ASSEMBLY

BOUGHT OUT ITEMS

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MATERIALS REQUIREMENT PLANNING (MRP)

In 1960s a new technique of Material Requirements Planning, popularly known as MRP, evolved. This was a proactive manner of inventory management. This technique fundamentally explodes the end product demand obtained from the Master Production Schedule (MPS) for a specified product structure (which is taken from Bill of Material) into a detailed schedule of purchase orders or production orders taking into account the inventory on hand. MRP is a simple logic but the magnitude of data involved in a realistic situation makes it computationally cumbersome. If undertaken manually, the entire process is highly time consuming. It therefore becomes essential to use a computer to carry out the exercise

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 MRP successfully demonstrated its effectiveness in:

Reduction of inventory Reduction in production and delivery lead times by improving co-ordination and avoiding delays Making commitments more realistic Increased efficiency

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Closed Loop MRP

MRP proved to be a very good technique for managing inventory, but it did not take into account other resources of an organisation. In 1970s, this gave birth to a modified MRP logic, popularly known as Closed Loop MRP. In this technique, the capacity of the organization to produce a particular product is also taken into account by incorporating a module called Capacity Requirements Planning (CRP). Hence, a feedback loop is provided from the CRP module to MPS if there is not enough capacity available to produce

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Master production schedule
Feedback

Material requirements planning

Capacity requirements planning
No

Feasible?
Yes

Purchase orders Inventory

Work orders Shop floor control

Manufacture

MANUFACTURING RESOURCE PLANNING (MRPII) 23

1980s, the need was felt to integrate the other resources of a manufacturing organisation. An integrated manufacturing management system evolved called Manufacturing Resources Planning (MRPII). MRPII has been defined by APICS as: "A method for effective planning of all the resources of a manufacturing company. Ideally it addresses operational planning in units, financial planning in dollars and has a simulation capability to answer 'what-if' questions. It is made up of a variety of functions each linked together: Business Planning, Production Planning, Master Production Scheduling, Material Requirements Planning, Capacity Requirements Planning and the execution system for capacity and priority. Outputs from these systems would be integrated with financial reports, such as the business plan, the purchase commitment report, shipping, budget, inventory production, etc."

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ERP
The Manufacturing Resources Planning suffered from a few drawbacks; it assumed the lead times to be fixed, the capacity to be infinite, etc. Over the years, other tools had evolved to automate the manufacturing management process like Computer Aided Design, Computer Aided Manufacturing, Computer Integrated Manufacturing, Customer Oriented Manufacturing Management System, etc. The shortcomings of MRPII and the need to integrate these new techniques, led to the development of a total integrated solution called Enterprise-wide Resource Planning (ERP). ERP atempts to integrate the suppliers and customers with the manufacturing environment of the organization

Evolution still continuing

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26 ERP Evolution (2)

Integrated system that cover the firms entire

value chain.
Industry oriented (specialized) Transition from an internal view of the firm to business

network vision within the industry

Electronic Commerce
Developing html interfaces for the internet/intranet Supporting complete commercial transactions

Applications with an object-oriented structure

Transition from an highly integrated structure to modular

with higher complementarily Plug and play facilities

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Functional Evolution

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(ERPs) are applications which handle a wide

variety of planning, transaction processing and accounting functions in an integrated manner. Many ERPs also support costing, human resources management, finite capacity scheduling (FCS), quality management and equipment maintenance. The defining characteristic of an ERP is its integration of information across many functional areas.

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It is an enterprise-wide information system

solution An enterprise-wide database, operating on a common platform, interacts with an integrated set of applications, consolidating all business operations in a single computing environment Ideally, the goal of an ERP system is to be able to have information entered into the computer system once and only once

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Enterprise Resource Planning systems employ

client/server technology Enterprise wide database Client/Server System This means that a users (clients) system runs an application (accounting, inventory management, etc.) that accesses information from a common database management system (server). This system reflects the concept of decentralized computing. ERP operates via a common database at the core of the system The database interacts with all the applications in the system, thus there are no redundancies in the data and integrity is ensured.

33 Applications/Modules:
Each ERP vendor provides a number of ERP

applications (or modules) for their systems. These are the functional software packages for each individual business unit (finance, human resources, order processing) Most ERP systems start with a set of core modules, and offer additional modules from which a company can choose. All of these applications are fully integrated to provide consistency and visibility for all the activities across entire operations However, ERP systems require users to comply with the processes and procedures as described by the application.

34 Industry Specific Applications:

Vendors also offer specialized applications to

account for unique processes and procedures within a given industry. These modules service vertical markets such as government, healthcare, financial service or retail environment For example, SAP, an ERP vendor, offers Public sector specific modules for government administration and functions. The current trend shows vendors moving into even more specialized areas, such as supply chain management, demand forecasting and sales automation and marketing

WHAT DRIVES ERP? Business Customer satisfaction Short product life cycles Competitive pressures Information-driven management Highly distributed operations Efficient processes required IT Legacy systems difficult to maintain (Y2K problem) Present software doesnt meet business needs Obsolete HW/SW are difficult to maintain

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ERP - The Enabler

What is that ERP enables ?

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Systematic Look into your Systems & Optimizing the processes Enables you to adapt yourself to new Discipline across the functions
technologies

procedures

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Why do companies undertake ERP Implementations

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Business Drivers for an ERP Implementation

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ERP Business Change Program

What does ERP really do?

ERP provides a backbone for enterprise. It allows

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a company to standardize its information systems Depending on the applications, ERP can handle a range of tasks from keeping track of manufacturing levels to balancing the books in accounting. The result is an organization that has streamlined the data flow between different parts of a business

In essence, ERP systems get the

right information to the right people at the right time

ADVANTAGES OF ERP
Enterprise wide information sharing Automatic adaptation to new technology Integration of all functions Increased efficiency and productivity Most companies want an information system as a product and not a collection of technology.

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DISADVANTAGES OF ERP
Few companies can get everything they need from one suite Bolt-on projects can be difficult to interface with other applications Notoriously complex Not enough skilled support people Changes internal processes Low flexibility

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Benefits of ERP

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Reduction of lead-time On-time shipment Reduction in Cycle time Better customer satisfaction Improved supplier Performance Increased flexibility Reduction in quality Costs Improved Resource Utility

Limitations

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Managers Cannot generate custom Reports or queries without help from a Programmer ERP systems Provide current status only, Such as open orders. The data in the ERP application is not integrated with other enterprise or division systems and does not include external intelligence.

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Problems Associated with ERP

The implementation of an ERP system is a very

time consuming, expensive and arduous task. For example, before a company, can begin the physical implementation of ERP, they must first deal with organizational issues, internal politics and the need for general consensus In an interview with IT executives from Fortune 1000 companies that had implemented ERP, 44% reported that they had spent at least four times as much on implementation help than they did on the software license itself

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What ERP vendors are doing ?.

However, ERP vendors are trying to take the pain

out of implementation. SAP has introduced a program called AcceleratedSAP (ASAP) that takes the knowledge gained from thousands of R/3 (SAP flagship software suite) implementations to date and encapsulates this expertise into a product called Solution Manager This product assists implementation teams configure SAP modules to conform to the processing style of some 1000s business operating scenarios

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Commitment to a Single Vendor

Letting one vendor provide most of or all of your enterprise

systems is an attractive but risky proposition . "If you depend on a single vendor, you get a common architecture, lower support costs and cheaper seats. "On the other hand, upgrades become a bear because you have to do everything at once. Also, as you become more dependent on a single vendor, you risk outsourcing your entire IS department to them". System improvements and upgrades are not in sync with the business cycle; systems have to move with the vendor. ERP system must remain current (latest versions) to ensure continued support from the vendor .

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Too many features

Fully integrated ERP systems have a lot of bells and

whistles. People tend to use all of the features that their software provides, regardless if those features are actually helpful in moving the company towards profitability, high quality and efficiency.

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ERP advantages
Without ERP systems, organizations typically

have to maintain interfaces between separate systems to ensure the flow of necessary information - for example, a sales order system may send data to a billing system through a batch interface. Business Problem Solved Improves visibility, currency and consistency of information by holding all data about sales, purchases, inventory, production, customers, suppliers and accounts in one system.

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Records and manages all transactions with

customers and suppliers Runs MPS, MRP with real time visibility of sales orders and purchase orders Provides a definitive repository for shared reference information, such as product codes, bills of material, formulas, routings and recipes Can update accounting records as transactions occur

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The benefits given by an ERP system arise from the capabilities of IT:
Timely availability of information. Thus, a badly needed

receipt of material at the loading dock would be made top priority by the system, which would also inform expeditors and parts planners to get it to production immediately. Integration of systems. Production systems, planning systems, and finance systems, time-and-attendance systems and so on all update each other automatically and seamlessly. Computational power. Many of the processes are handled automatically by the system, using its enormous computational power. This leaves people to deal with exceptions and decision-making.

What will ERP Fix in Business ?

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There are five major reasons why companies undertake ERP. Integrate financial information Integrate customer order information Standardize and speed up manufacturing processes Reduce inventory Standardize HR information

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What is ERP offering?

ERP is business process infrastructure

ERP is a software mirror image of the major

business processes of a firm, such as customer order fulfillment and manufacturing. ERP software automates and integrates the basic processes of a firm, from finance to the shop floor, and eliminate complex, expensive links between computer systems that were never meant to talk to each other.

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What is ERP offering?

ERP Business Technology

architecture
Business Process Workflow Management Functional Information Management
Marketing, Operations, HRM, etc.

Decision Support Models and Tools Data Management

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Examples of ERP Packages

BAAN
JD Edwards Oracle PeopleSoft SAP

www.baan.com www.jdedwards.com www.oracle.com www.peoplesoft.com www.sap.com

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Reasons for Not Adopting Enterprise Systems

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Lack of Feature-Function Fit: between a

companys needs and the packages available in the marketplace. Company growth, strategic flexibility or decentralized decision-making style. Many ERP systems are not easy to change once they are configured and installed. Availability of alternatives for increasing the level of systems integration

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People Why Implementations Fail succeed Dont want the systems to People are comfortable and dont see the need for the new system. People have unrealistic expectations of the new system. People dont understand the basic concepts of the system. The basic data is inaccurate. The system has technical difficulties.

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Success is multidimensional and relative to both

What time and objectives.is ERP Success? What is success today may not be success in two years. (Or 6 months) An ERP system that gives competitive advantage today may not do so when competitors catch up and this large ERP system simply becomes a cost of doing business. Success is often judged relative to the organizations unique goals for the system.

61 Factors External to in ERP Success Control Factors an Organizations Starting conditions: Competitive position, industry, financial position, prior relevant experience, size, structure, management systems. These conditions may change over the course of the implementation. ERP Implementations are highly fluid and subject to radical and unforeseen changes. An organizations goals and plans for the ERP system may not be realistic when viewed objectively in light of their starting conditions.