Enterprise Resource Planning

Session 2

WHAT IS ENTERPRISE RESOURCE PLANNING?

Enterprise resource planning (ERP) integrates all

departments and functions throughout an organisation into

a single IT system so that employees can make decisions

by viewing enterprise-wide information on all business

operations

ERP TIMELINE

01

1964Material

Requirement

Planning (MRP)

solution invented

02

1970sSoftwares

handled finance,

HR, Customer

Relationship

Management

(CRM)

03

1983MRP II

developed

integrating

manufacturing

tasks into a

common shared

data system

04

1990sGartner coins

‘ERP’

encompassing

business

intelligence,

salesforce

automation and

eCommerce

2000sCloud based

ERP

05 06

PresentSoftware-as-a-

Service (SaaS)

integrated in

ERP along with

IoT

and social media

ERP SOFTWARE - EXAMPLES

SO, WHAT ALL CAN AN ERP SYSTEM DO?

ERP functions offered by ERP vendors

include:

⚫ Finance, accounting, sales, marketing,

human resources, operations, and

logistics

ERP vendors differentiate themselves by

offering unique modules such as:

⚫ Customer Relationship Management

⚫ Supply Chain Management

⚫ Business Intelligence

⚫ Change Management

Integrated: one version of truth01

Best practices02

Integrates multiple functionalities03

Add other modules to increase utility04

WHAT ARE THE BENEFITS OF HAVING AN ERP TOOL IN AN ORGANISATION?

Project Management

Change Management

Strategic Planning

Continuous Process

Management

Technology

Management

Fragmented

Function-based

Inefficient

Costly

Slow

Integrated

Process oriented

Standardised

Customer-focused

Competency-centered

Process change

through ERP tool

Old Process New Process

HOW DOES AN ERP TOOL HELP IN PROCESS CHANGES AND BPR?

HOW DID ERP BENEFIT TATA STEEL (1999)?

Old Process: Systems based on processes, complex and error

prone

Steps taken:

⚫ Strategic planning: ERP introduced to keep up to date with

technology and an edge over competition

⚫ Change management: People not involved in the process were

apprised of the developments taking place

⚫ Project management: ERP rolled out in a ‘big bang’ mode,

across all 46 locations at once

⚫ Technology management: SAP R/3 was chosen as the ERP

platform

⚫ Continuous process management: Legacy systems were

mapped to SAP modules

New Process: SAP solution allows daily updates, customer friendly

GUI and reduces costs (manpower cost reduced from $200 per ton

to $140)

HOW TO SUCCESSFULLY DEPLOY AN ERP FOR A BUSINESS ORGANISATION?

Tip 1: Prepare the people for change

Tip 2: Choose a mix of approach best

suited for the firm

Tip 3: Select the modules/package with

both present and future in mind

Discussion questions while choosing

between simple and complex

implementation:

⚫ Which one will you select if you are a

traditional industry that is not growing and

has a first-time user?

⚫ Which one will you select if your firm has

experienced users and part of a growing

industry?

HOW TO SUCCESSFULLY DEPLOY AN ERP FOR A BUSINESS ORGANISATION?

TAKING A LEAF FROM THE BOOK OF TATA STEEL

Tip 1: Involve or inform everyone

related to the systems regarding the

changes.

Tip 2: Select top tier technology to

maintain an edge over the

competition.

Tip 3: The mix of ERP modules:

extended SAP package with asset

management and budget

management modules

JOHNSON INDUSTRIES

Wholesale distributor of auto parts since 1924

Inorganic growth through acquisition of companies

in similar markets

Largest Original Equipment Manufacturer (OEM)

auto parts distributor with annual sales of $150M

11 distribution centres and 3 retail outlets servicing

over 2,000 dealerships

Company Overview

THERE WERE VARIOUS ISSUES PLAGUING JOHNSON INDUSTRIES

1 Over budget implementation01

1 Inadequate support02

1Acquisitions without a clear IT

strategy03

1 Duplicate and inconsistent practices04

1No support for multi-warehouse

activities05

1Inadequate inventory management

functionality06

SOME EXAMPLES OF DAY-TO-DAY ISSUES FACED IN JOHNSON INDUSTRIES

Critical business practices (invoicing, purchasing,

supplier payments) distributed across several DCs

leading to inadequate control over accounting

practices

Invoices sent to multiple DCs, creating multiple

corporate identities

Business information managed on four different IT

systems creating complexity

Job duties duplicated across all the 11 DCs

HENCE A DIRE NEED TO IMPLEMENT ERP TO RESOLVE THE ISSUES

Standardise processes and practices

Integrate information systems across DCs to

enable better control

Reduce duplication and streamline operations to

cut costs and improve productivity

The 3Cs perspective is described in the following

two points:

⚫ Sustain competitive edge

⚫ Reduce unnecessary costs and present an

integrated organisation for customers to do

business with

INTEGRATED VIEW OF CHANGES NEEDED ACROSS THE ORGANISATION FOR A SUCCESSFUL TRANSFORMATION

New business model

Johnson Industries as a single

entity

Streamlined future acquisitions

Corporate culture

Job structure and

content

Support for multi-warehouses

RFID to track inventory

Warehouse location system

Consistent cycle count

Centralised critical business processes

Best practices across organisation

Strategy

People

Technology

Business

Processes

JOHNSON INDUSTRIES

New Model

Functional

AreaOrder to Cash Procure to Pay Logistics Record to Report

Corporate

Sales Order Processing/Quotes Sales Tax MaintenanceChart of Accounts

Maintenance

Order Status Management Distribution Resources Planning Journal Transactions

Customer Maintenance Submit Purchase Orders Month-end Close

Pricing/Contract Maintenance Receive Supplier Invoices Sales Analysis

Credit Management 3-Way Matching/Payment Approval P&L Reporting

Sales Tax Maintenance AP Checks Budgeting

Monthly Statements Supplier Maintenance Expense Allocations

Apply Cash Purchasing for Non-Stock Inventory Analysis

AR Collections Item Maintenance Vendor Performance

Vendor Return Credit Allowance

Recuring Vouchers

JOHNSON INDUSTRIES

New Model

Functional

AreaOrder to Cash Procure to Pay Logistics Record to Report

All

Distribution

Centers

Sales Order Processing/Quotes Purchasing for Non-Stock Cycle Counting Sales Analysis

Pick/Pack Product Receipt Routing Physical Inventory P&L Reporting

Ship Product Putaway InventoryInventory

AdjustmentsInventory Analysis

Customer Returns Advanced Shipping NoticeDriver Route

MaintenanceEfficiency Reporting

Walk-in/Cash Sales Customer Service Level

Invoicing

AFTER IMPLEMENTING THE NEW ERP, JOHNSON INDUSTRIES SAW MULTIPLE BENEFITS

Increased inventory turns and improved cash flow

Ensured the consistent and timely application of

price changes

Presented a single company image to its customer

base

Lowered payroll expenses by $400,000

Increased order fill rates by 1% and gross profit by

$419,000 per year

Savings of approximately $1M in annual inventory

carrying costs

Lowered employee training costs by incorporating

best practices and standards model