MCA-II Sem-IV

Enterprise Resource

ManagementERP Demystified (Second Ed.)ERP Demystified (Second Ed.)

- Alexis Leon- Alexis Leon

Enterprise• Enterprise Is a group of people with a common goal to earn

profit by providing goods or services to society by effectively utilizing available resources.

• Organization & Enterprise difference according to Traditional approach.

• In Enterprise - Centrally stored data is shared. (No data duplication, Data Standardization, Data tracking)

• Any enterprise may have sub-units like- Production Planning, Manufacturing/ Production, Purchase, Sales & distribution, HR, Finance, R&D, Marketing, Material Management and so on.

• ERP systems helps in making the task easier by integrating Information system barriers, automating business processes and functions.

Resources

• Are business components linked together according to plan to achieve business objectives• Any business Organization may have

resources like- Man, Money, Material, Machines, Time (labor hours)

Planning/ Management

• Is a systematic way to achieve objectives or goals with effectively & efficiently utilizing the resources.• Planning processes are done at

different levels of management

Enterprise Resource Planning• ERP Means the techniques and concepts for

integrated management of business by effective use of management resources to improve the efficiency of enterprise management. – Alexis Leon

• ERP is an integrated information system built on a centralized database & having a common computing platform that helps in effective usage of enterprise’s resources & facilitates the flow of information between all business functions of the enterprise and with external stakeholders.- V. K. Garg

Enterprise Resource Planning• Its goals include high-levels of customer

service & satisfaction, growth in productivity, cost reduction and inventory turnover with effective Supply Chain Management & e-commerce using ERP software's/packages

Common ERP Myths (Pg.13-17)

1. ERP Means More Work and Procedures(Require new skills & Procedures to be learned, Proper training &

awareness about benefits of ERP to employee needed)

2. ERP will Make Many Employees Redundant and Jobless(Due to automated system, new job description by re-location & re-training employee)

3. ERP is the Sole Responsibilities of the Management(Mgt is only responsible for development of ERP policies, usage guidelines, allocation of budget, package selection, appointment of competent professionals. Proper communication with employee is necessary)

4. ERP is Just for the Managers/Decision-makers(ERP provides high quality, timely & relevant information on fingertip of Managers for decision making, likewise proper education & training on usage of various features of ERP S/w)

Common ERP Myths (Pg.13-17)

5. ERP is Just for Manufacturing Organizations(due to historical development of ERP, ERP covers all segments of industry)

6. ERP is Just for the ERP implementation Team(consists of outside consultants, vender representative & selected group of employee. But once implementation & user training is over, then solely responsibility of employees only)

7. ERP Slows Down the Organization8. ERP is Just to Impress customers

(Good ERP provides better & high quality products & services at very high speed, that impress new customers & also improves customer relationship)

9. ERP Package will take care of everything(ERP system needs people to operate, use and maintain. )

Common ERP Myths (Pg.13-17)

10. One ERP Package will Suit Everybody(tools differ in features, capabilities, size, functionality, price, technical support, customizability, scalability etc)

11. ERP is Very Expensive(Cost X Benefit)

12. Organization can succeed without ERP(Small size organizations no more effect but large scale industries affects a lot)

Evolution of ERP• Timeline: 1960s• System: Inventory Management & Control (Bill of

Material BOM Processing)• Description: Is the combination of IT and business

process of maintaining the appropriate level of stock in warehouse. The activities of inventory management includes identifying inventory requirements, setting targets, providing refill techniques and options, monitoring item usages, reconciling the inventory balances, and reporting inventory status.

Evolution of ERP Cont…• Timeline: 1970s• System: Material Requirement Planning (MRP)• Description: Used for scheduling production processes,

MRP generates schedules for the operations and raw material purchase based on the production requirements of finished goods, the structure of the production system, the current inventories levels and the lot sizing procedure for each operation. (Useful for Manufacturing & Production Planning Peoples to calculate material required. Scope limited to production team)

• MRP focuses on following questions1. What products are we going to make?2. What are the material needed to make the products?3. What are the material that we have in stock?4. What are the items that need to be purchased?

Evolution of ERP Cont…• Timeline: 1980s• System: Manufacturing Requirement Planning (MRP II)

• Description: Utilizes software applications for coordinating manufacturing processes - from Product planning, Parts purchasing, Inventory control to Product distribution. Also useful for financial planning reports like shipping budget, purchase commitment report, business plan etc.

Master Product Schedules

Master Requirement Plan

Purchasing Production Schedules

Performance Measures

Resource OK

Resource OK

Business Plan

Sales and Operating Plan

Marketing Plan Production Plan

Yes

Yes

No

No

Feedback

Feedback

MRP-II has five major levels1.Business Plan- talks about long term goals and objectives & Jointly agreed by all teams in the organization2.Sales and operation plan- developed by Sales & marketing teams together, describes quantities of different product that need to be produced, resources needed, and capacity availability.3.Master Production Scheduling- contains plan of finished products to be made along with the promise date of delivering product to customer4.Material requirement Planning- this plan tells about how much quantity is needed and when it is needed.5.Purchase and Production Activity Control- this is implementation phase of production planning and control system

Evolution of ERP Cont…• Timeline: 1990s• System: Enterprise Resource Planning (ERP) (ERP often

referred as back-office S/w)

• Description: Uses multi-module application software for improving the performance of the business processes. ERP systems often integrate business activities across-functional departments from product planning, part purchasing, inventory control, product distribution, fulfillment, to order tracking. ERP software systems may include application modules for supporting marketing, finance, accounting and human resources. ERP systems are capable of integration of different technologies like BPR, Data warehousing, CRM, SCM etc.

Reasons for the growth of ERP MarketIndustry Analysts are forecasting Growth Rate 30% for Next 5

yrs

• Enable improved business performance– Cycle time reduction (Placing order and delivery of product)

– Increased business agility/quickness– Inventory reduction– Order fulfillment improvement

• Support business growth requirement– New product/product lines, new customers.– Global requirements including multiple languages and

currencies.

• Provide flexible, integrated, real-time decision support– Improve responsiveness across the organization.

Reasons for the growth of ERP Market Cont…

• Eliminate limitation in legacy systems like-– Century dating issues– Fragmentation of data & processing– Inflexibility to change– Insupportable technologies

• Take advantage of the untapped mid-market– Increased functionality at a reasonable cost– Client-server/ open system technology– Vertical market solution

The Advantage of ERPDirect Advantages1. Improved efficiency

2. Information integration for better decision making

3. Faster response time to customers queries.

4. Business integration due to automatic data updation.

5. Flexibility in managing multi-national environment diversity.

6. Better analysis and planning capabilities due to central database

7. Use of latest technology to cope-up with advanced IT Technologies.

Indirect Advantages1. Better corporate image

2. Improved customer goodwill

3. Customer satisfaction

Importance of ERP to a Company• ERP affects almost all ways of organizations to do business(Due to automation of many business processes & streamlining day-to-

day operations, also better service to customer)

• ERP forces Competitor to change their business strategies & processes.

• ERP Forces Business Partners to become More Competitive for Decision making

• ERP Improves the Profits of the Consulting Firms(Services like BPR, selecting right ERP package, ERP implementation, end-user

training, post implementation support, etc)

• ERP is the Most Important tool for Business Process Reengineering

(BPR: Analysis & re-design of workflow, necessary to lower costs and increase quality of service)

Importance of ERP to a Company Cont…• ERP Enforces “Best Practice Business Processes” in

Organization(Better service, sustainable benefit over-time, improved business performance)

• ERP fully utilizes the True potential of Client-Server Computing to Deliver an Enterprise Product

• ERP has Changed the Nature of IS Functions & IT Professionals

(Traditional IS funn: Designing, Developing & Implementing S/w., only has knowledge about firm-specific legacy applications)

• ERP has Changed the Nature of Jobs in All Functional Areas.(Industry needs awareness about IT technology as well as business activities)

• ERP Implementation is Very Costly(S/w, H/w, consultancy, internal staff, implementation support etc.)

(ROI) Benefits from an ERP Systems• Quantifiable/ Quantitative/Tangible benefits– Reduces Inventory & Inventory carrying costs (The cost of holding goods in stock. it includes capital, warehousing, process,

depreciation, insurance, taxation costs.)

– Reduces Personnel costs (Successful ERP reduces 10% Personnel cost)

– Reduces Material costs (better Vendor negotiation for price, 5% cost redn)

– Improves Productivity (better utilization resources)

– Improves sales and customer service (CRM, Accepts feedback from customer)

– Efficient Financial Management (improved collection procedure, accurate invoice creation, e-banking support)

– On-time delivery (Shipments) improvements– IT Cost reduces

Source: Survey conducted by Deloitte Consultancy

Benefits from an ERP Systems• Qualitative/Intangible/non-financial benefits: Quantified in

terms of cost savings used to show impacts on financial results

– Accounting (Avoids duplicate data entry, speedup invoice processing, Financial reports easily generated, help for cash planning & Decision support)

– Product & Process design (Proper control over process design)

– Production & Material Management (helps to establish schedules for production on priority & communicates to everyone)

– Sales (Supports e-commerce facility, customer support & Satisfaction)

– MIS Function– Customer Satisfaction– Improved Supplier Performance (Schedules, reminders)

– Use of Latest Technology

Source: Survey conducted by Deloitte Consultancy

Benefits from an ERP Systems• Other benefits– Reduces Implementation Costs (Selecting Proper implementation

strategy: Big bang, incremental approach etc.)

– Lower Production &Business Transaction Costs ( By improving business functions, better Scheduling, monitoring & control

– Lower-cost of Reporting– Lower Business Process Change & Enhancement Costs

(Using BPR technology)

– Customer and Partners support & Satisfaction (CRM & Feedback mechanism helps for better product design & cost reduction)

– Enabling New Business Opportunities (CRM S/w for warranty offerings & other support facilities)

– Reduction of Lead-time (Time between Placing order & receiving)

– Reduction in Cycle time (Placement of order & delivery of product)

– Improved Resource Utilization

Risk Factors of ERP Implementation

ERP fundamentally changechange the way companies do business and the way people work.

3 basic sides of ERP Issues are- •People Issues•Process Issues•Technology Issues

Source: Survey conducted by Deloitte consultancy

Risk to ERP : People IssuesPeople: Employees, Management, Implementation team, Consultants and Vendors.‘ERP means Change’ & Human nature is to resist changeForcing the system on unwilling people creates risk.

•Main Issues are– Change Management: ERP Changes Job profile, require proper management

– Internal Staff Adequacy: Skilled employees problem, consultancy charges increases

– Project Team: members should be initiative, dedicative, team building skill, enthusiasm & excellent communication skill

– Training: Availability of good trainer – Employee Re-location & Re-Training: reluctant to change

– Staffing (Includes Turnover): ERP require qualified & trained emp. Preserve trained employee from Leaving company

Risk to ERP : People Issues cont…

• Main Issues are– Top Management Support & permissions– Consultants: Right consultant, must familiar with internal

working & organizational culture

– Discipline: from Mgt and employees.– Resistance to change: ignorance, can be reduced by

proper education & training

Risk to ERP : Process RiskProcesses were used to improve, streamline & make the business processes more effective, productive & efficient.ERP introduces hundreds of new processes to improve, streamline and make business processes more efficient, productive and effective.

•Main Issues are:– Program Management: Accuracy, easiness, availability– Business Process Reengineering: achieved by the patch-up of

organization structures, management systems, job descriptions, performance measurement, skill development, training & use of IT.

– Stage Transition: Who is responsible after ERP go live? (ERP Expert, process expert, site leader, the project management, steering committee, IT peoples)

– Benefit Realization: No proper involvement of employees in training, unawareness about capabilities of system

Risk to ERP : Technological RiskERP systems should keep update of the latest technological development for better survive.•Technological issues are:– Software Functionality: Simple & adequate otherwise

frustrations and errors– Technological Obsolescence: due to rapid development in technology,

should be ease to enhancement/up-gradation, quality of vender support

– Application Portfolio/selection Management: focus on the selection of new business application. easy to maintain

– Enhancement/Upgrades: should be in regular contact with ERP vender for day-to-day update. Risk occurs when vender either closing shop or stopping support for the system.

ERP Implementation Issues• Project scope & size- Vary scope: vary size: vary persons: vary

cost: vary technological environment

• Lengthy Implementation Time- May take 1-4 yrs, employee turnover rate

• High initial investment- if implementation fails the company will suffer from huge loss & can go bankrupt.

• Unreasonable deadlines- Management insist on unreasonable deadlines, so implementation team takes shortcuts, may tends to failure of system

• Insufficient funding- if budgets are not allotted without proper homework & without consulting expert hidden cost increases

• Interface- must follow HCI principles, Company –Consultant-Vender

Implementation Issues• Organizational politics- consultant, vender & implementation

team members must away from organizations politics

• Scope Creep- to prevent ‘never-ending project’

• Unexpected Gaps- promise of an ERP system & actually delivered system

• Configuration Difficulties- problems in customization & adopting different technologies

Operation &Maintenance Issues

• System operation & maintenance is en-ending process, always requires new modules/features, versions, technologies, new persons to be trained etc.