A study on A study on EEnterprise nterprise RResource esource PPlanninglanning

ByBy Yatin TopiwalaYatin Topiwala Kabil Kamban Kabil KambanMarvin PhagwaMarvin Phagwa

Billy LauBilly Lau

What is ERP?What is ERP?

- ERP or Enterprise Resource Planning is a software system that - ERP or Enterprise Resource Planning is a software system that attempts to integrate all the departments and locations across a attempts to integrate all the departments and locations across a company onto a single computer system. company onto a single computer system.

- It attempts to create one single database structure for the entire - It attempts to create one single database structure for the entire company and it serves the needs of different departments particular company and it serves the needs of different departments particular needs.needs.

- Few major ERP vendors – SAP, BAAN, JD Edwards, Oracle, - Few major ERP vendors – SAP, BAAN, JD Edwards, Oracle, PeopleSoft.PeopleSoft.

IntroductionIntroduction

ERP System ModelERP System Model

Finance and Accounting

Production & Material management

Shipping

Supply chain Integration

Human ResourcesDistributors,

Retailers & End users

Centralized ERP

Database, Software and servers

Holistic View:Holistic View:

- Enables transparency between the departments - Enables transparency between the departments

- Enables easy sharing of standardized data - Enables easy sharing of standardized data

- Enables key decisions to be made without difficulty based on facts - Enables key decisions to be made without difficulty based on facts Best of Practices:Best of Practices:

- They incorporate the best of practices in the industry in almost every possible - They incorporate the best of practices in the industry in almost every possible area of operationarea of operation

- For example, Sales forecasting methods like exponential smoothing, moving - For example, Sales forecasting methods like exponential smoothing, moving averages. Inventory control methods like ABC analysis, MRP, Calculating averages. Inventory control methods like ABC analysis, MRP, Calculating Economic order quantity etc.Economic order quantity etc.

- Incorporating these practices in the ERP system leads to - Incorporating these practices in the ERP system leads to re-structuring of company’s processes.re-structuring of company’s processes.

Benefits of using ERPBenefits of using ERP

Customer and supplier relations:Customer and supplier relations:

- They incorporate supply-chain soft wares- They incorporate supply-chain soft wares

- It enables customers to do stock check, order status, product pricing etc.- It enables customers to do stock check, order status, product pricing etc.

- It improves the visibility of order fulfillment processes.- It improves the visibility of order fulfillment processes.

- It enables the companies to recognize the needs of the customers.- It enables the companies to recognize the needs of the customers.

- It enables them to plan deliveries thereby saving finished goods inventories - It enables them to plan deliveries thereby saving finished goods inventories cutting inventory costs.cutting inventory costs.

- Ability to track actual costs of activities and perform activity based costing- Ability to track actual costs of activities and perform activity based costing

- Newer ERP systems incorporate e-business features, which are gaining - Newer ERP systems incorporate e-business features, which are gaining popularity.popularity.  

Benefits of using ERP Benefits of using ERP continued...continued...

Standardizing manufacturing processes:Standardizing manufacturing processes:

- Companies often have their various business units using different methods - Companies often have their various business units using different methods and computer systems but ERP systems integrates all of them in a single and computer systems but ERP systems integrates all of them in a single software system.software system.

- It incorporates standardized steps for automating many manufacturing - It incorporates standardized steps for automating many manufacturing processes.processes.

- It produces production orders, allocates assembly time, calculates product - It produces production orders, allocates assembly time, calculates product price taking into account multiple cost components like labor, production, price taking into account multiple cost components like labor, production, assembly, taxes etc.assembly, taxes etc.

- It eliminates the need for interfacing multiple systems.- It eliminates the need for interfacing multiple systems.

- Standardizing and automating the processes using a single, integrated - Standardizing and automating the processes using a single, integrated software system saves time and increases productivity.software system saves time and increases productivity.

- It enables easy investigation and identification of bottlenecks and other - It enables easy investigation and identification of bottlenecks and other problematic areas.problematic areas.

Benefits of using ERP Benefits of using ERP continued...continued...

- To retain quality/loyal employees- To retain quality/loyal employees

- To use this program as a means to motivate staff, increase - To use this program as a means to motivate staff, increase morale, increase productivity and reduce turnovermorale, increase productivity and reduce turnover

- To cultivate saving habits among employees- To cultivate saving habits among employees

- To enhance team work among employees- To enhance team work among employees

- To enhance corporate image- To enhance corporate image

Benefits of ERP Benefits of ERP continued...continued...

Specific to To Employers Specific to To Employers

Steps to determining the need, Steps to determining the need, budgeting & choosing the ERP Systembudgeting & choosing the ERP System

Short-list available softwareShort-list available software

- Research on type/brand of ERP softwareResearch on type/brand of ERP software

- Acknowledge software that are customized for particular businessesAcknowledge software that are customized for particular businesses

Forming an ERP implementation teamForming an ERP implementation team

- Highly experienced employees from various departments- Highly experienced employees from various departments

- Committed participation of top managementCommitted participation of top management

Choosing the softwareChoosing the software

- Determine the business or operation strategiesDetermine the business or operation strategies

- Decide which areas supporting these strategies need improvementDecide which areas supporting these strategies need improvement

- Research on software features that support these strategiesResearch on software features that support these strategies

- Compare software with the desired featuresCompare software with the desired features

- Choose software that requires minimal or no customization Choose software that requires minimal or no customization

Steps to determining the need, Steps to determining the need, budgeting & choosing the ERP System budgeting & choosing the ERP System continued...continued...

Estimating the budget for ERPEstimating the budget for ERP

- Acknowledge difficulty in estimating the monetary benefits of ERP usageAcknowledge difficulty in estimating the monetary benefits of ERP usage

- Determine easily measurable qualities that can justify ERP usageDetermine easily measurable qualities that can justify ERP usage

- Benchmark companies that have experience in ERP implementationBenchmark companies that have experience in ERP implementation

Recognizing hidden costs during implementation and long-term basisRecognizing hidden costs during implementation and long-term basis

- Acknowledge costs other than software and hardwareAcknowledge costs other than software and hardware

- Account for hiring external consultantsAccount for hiring external consultants

- Account for expenses on training the employees to the ERP systemAccount for expenses on training the employees to the ERP system

- Account for dedicating few employees in the testing phasesAccount for dedicating few employees in the testing phases

- Account for the time and complications in transferring data from the old Account for the time and complications in transferring data from the old to the new systemto the new system

Steps to determining the need, Steps to determining the need, budgeting & choosing the ERP System budgeting & choosing the ERP System continued...continued...

Recognizing hidden costs during implementation and long-term basis Recognizing hidden costs during implementation and long-term basis (continued)(continued)

- Account for expenses on customizing the software both during Account for expenses on customizing the software both during implementation and addition of patches in futureimplementation and addition of patches in future

- Account for archiving requirements that might be required in futureAccount for archiving requirements that might be required in future

- Account for additional hardware costs for data backup systems, firewall Account for additional hardware costs for data backup systems, firewall and UPSand UPS

Sample costs for implementing Sample costs for implementing an ERP system for a company of 30 millionan ERP system for a company of 30 million

Dollars CanadianDollars Canadian

HardwareHardware - 40,000 (main server)- 40,000 (main server)

- 10,000 (gateway)- 10,000 (gateway)

SoftwareSoftware - 140,000 (CMS400)- 140,000 (CMS400)

TrainingTraining - 12,000 - 12,000

LicensingLicensing - 7,000 per year- 7,000 per year

MiscellaneousMiscellaneous - 10,000- 10,000

MaintenanceMaintenance - 800 per year- 800 per year

____________________________________________________________________________

TotalTotal - 219,800- 219,800

(Note that hidden costs are not covered)(Note that hidden costs are not covered)

Why do ERP systems fail ? And Why do ERP systems fail ? And how could failures be prevented?how could failures be prevented?

- Business processes not driven by business or operating strategyBusiness processes not driven by business or operating strategy

- Presence of a sense of true accountability for every ERP- Presence of a sense of true accountability for every ERP

featurefeature

- Lack of commitment from top management - Lack of commitment from top management

- Implementation process taking longer time than what was anticipatedImplementation process taking longer time than what was anticipated

- Loss of commitment from management/employees- Loss of commitment from management/employees

- Plan the timeline carefully, allow flexibility- Plan the timeline carefully, allow flexibility

- Review timeline at every stage of the implementation process - Review timeline at every stage of the implementation process - Poor pre-implementation preparationsPoor pre-implementation preparations

- Careful anticipation of change in processes due to ERP - Careful anticipation of change in processes due to ERP

- Maintain transparency to suppliers and customers- Maintain transparency to suppliers and customers

Why do ERP systems fail ? And Why do ERP systems fail ? And how could failures be prevented?how could failures be prevented? Continued… Continued…

- Lack of testing/assessments of the ERP systemsLack of testing/assessments of the ERP systems

- Testing at every stage of the implementation process- Testing at every stage of the implementation process

- Develop a highly structured assessment plan- Develop a highly structured assessment plan

- Recognizing the interrelations between various processes- Recognizing the interrelations between various processes

- Insufficient training of employees on the ERP systemInsufficient training of employees on the ERP system

- Recognize that no amount of advanced information - Recognize that no amount of advanced information technology offsets incompetent userstechnology offsets incompetent users

- Cost of the implementation process exceeding the planned budgetCost of the implementation process exceeding the planned budget

- Mistakes in budgeting can prove to be disasters- Mistakes in budgeting can prove to be disasters

- Recognizing the hidden costs- Recognizing the hidden costs

- Company not employing qualified personals to implement ERPCompany not employing qualified personals to implement ERP

ConclusionConclusion

Regardless of the costs and risks involved in Regardless of the costs and risks involved in implementing an ERP system, if implemented well, the implementing an ERP system, if implemented well, the organization will save tremendous amount of capital. If an organization will save tremendous amount of capital. If an organization has sufficient capital we recommend them to organization has sufficient capital we recommend them to look in to ERP implementation. look in to ERP implementation.

Q & A SessionQ & A Session

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