ERP – ENTERPRISE ERP – ENTERPRISE RESOURCE PLANNINGRESOURCE PLANNING

ENTERPRISE – AN OVERVIEWENTERPRISE – AN OVERVIEW

DEFINITION:DEFINITION:

An enterprise is the group of people with a common goal, which An enterprise is the group of people with a common goal, which has certain resources at its disposal to achieve this goal.has certain resources at its disposal to achieve this goal.

ERP is a commercial software package promising the integration of ERP is a commercial software package promising the integration of all the information flowing through the company (financial and accounting all the information flowing through the company (financial and accounting information, supply chain information, customer information and human information, supply chain information, customer information and human resource information etc.).resource information etc.).

INFORMATION SYSTEM:INFORMATION SYSTEM:

In enterprises, raw materials moves through a process and In enterprises, raw materials moves through a process and transformed into usable products. Similarly, in an information system data transformed into usable products. Similarly, in an information system data are supplied to a system as input, it is proceed and transformed into are supplied to a system as input, it is proceed and transformed into information as output. Through the ERP, technology transforms the data, information as output. Through the ERP, technology transforms the data, that are available in the enterprise in usable information.that are available in the enterprise in usable information.

LEVELS OF AN ORGANIZATION:LEVELS OF AN ORGANIZATION:

The organization or an enterprise is having some internal and The organization or an enterprise is having some internal and external functions and several information levels according to its function.external functions and several information levels according to its function.

Strategic planning

Tactical planning and management

control

Operational control

Transaction Processing

LEVELS OF ORGANIZATION OR MANAGEMENT

Lower level

Middle level

Top level

These functional levels are information generators for the enterprise. These functional levels are information generators for the enterprise.

All the internal/external information and functions working in isolated form All the internal/external information and functions working in isolated form and have their own information systems of data collection and analysis. and have their own information systems of data collection and analysis.

The information is available only to top management in the form of reports The information is available only to top management in the form of reports and there is no flow of information among the various departments.and there is no flow of information among the various departments.

One dept. from the same organization does not know what other does and One dept. from the same organization does not know what other does and sometimes objectives of the each department are conflicting. sometimes objectives of the each department are conflicting.

So instead of a common goal, the various dept. pull the organization in So instead of a common goal, the various dept. pull the organization in different direction.different direction.

With ERP approach, all dept. knows what the others are doing, through the With ERP approach, all dept. knows what the others are doing, through the central database. central database.

This information integration provide to meet the goal of common objective.This information integration provide to meet the goal of common objective.

To achieve the common goal, enterprises needs transparency and free To achieve the common goal, enterprises needs transparency and free information access among the various functional depts. information access among the various functional depts.

ERP system helps to accomplish this by integrating the information and ERP system helps to accomplish this by integrating the information and enables smooth and seamless flow of information across dept.enables smooth and seamless flow of information across dept.

Strategic and operational planning

Sales and distribution

Manufacturing

Production and planning

Quality management

Finance

Human resource

Logistic management

Maintenance Management

Material management

An information system without ERP

An information system with an ERP System

Strategic and operational planning

Sales and distribution

Manufacturing

Production and planning

Quality management

Material management

Central database

Finance

Human resource

Logistic management

Maintenance management

INTEGRATED MANAGEMENT INFORMATION:INTEGRATED MANAGEMENT INFORMATION:

An information system there is a logical flow of information where An information system there is a logical flow of information where data is supplied to the system as input, manipulates as process, and is data is supplied to the system as input, manipulates as process, and is transformed into information as output.transformed into information as output.

Input Processed Output

Data Processing technology Information

Work of the information system in an organization

Example of the integrated management information is Management Information system. MIS is one of the popular subsystem or technology used in ERP.

MIS is a system which provides information supports for the decision -making in the organization.

The MIS is depicted by IPO model.

COMMON ERP MYTHS:COMMON ERP MYTHS:

ERP means more work and ProceduresERP means more work and Procedures ERP will make many employees redundant and joblessERP will make many employees redundant and jobless

ERP is the sole responsibility of the managementERP is the sole responsibility of the management ERP is just for the manager ands Decision – makerERP is just for the manager ands Decision – maker

ERP is just for manufacturing organizationsERP is just for manufacturing organizations ERP is just for the ERP implementation teamERP is just for the ERP implementation team

ERP slows down the organizationERP slows down the organization ERP is just to impress customersERP is just to impress customers

ERP package will take care of everythingERP package will take care of everything One ERP package will suit everybodyOne ERP package will suit everybody

ERP is very expensiveERP is very expensive Organizations can succeed without ERPOrganizations can succeed without ERP

REASONS FOR THE GROWTH OF ERP:REASONS FOR THE GROWTH OF ERP:

Reduction of lead timeReduction of lead time Cycle time cutCycle time cut On time shipmentOn time shipment Increase of inventoryIncrease of inventory Doubled businessDoubled business Customer satisfactionCustomer satisfaction Increase flexibilityIncrease flexibility Better analysis and planning capabilitiesBetter analysis and planning capabilities Easy decision makingEasy decision making Reduce quality cost by implementing latest technologyReduce quality cost by implementing latest technology Proper utility of resourcesProper utility of resources Improved information accuracyImproved information accuracy Use of client server architectureUse of client server architecture Use of open system technologyUse of open system technology

EVOLUTION OF ERPEVOLUTION OF ERP

In last four decades technology has changed very rapidly. This fast In last four decades technology has changed very rapidly. This fast improvement has reflected in respect of applications of computers in improvement has reflected in respect of applications of computers in business.business.

50’s and 60’s:50’s and 60’s: Data processing was very complex, slow.Data processing was very complex, slow. Business applications involved activities like card punching, program loading Business applications involved activities like card punching, program loading

and processing, card verificationand processing, card verification Next improvement was substitute for human clerical activitiesNext improvement was substitute for human clerical activities Then was the invention of new s/w and h/w technology that supported Then was the invention of new s/w and h/w technology that supported

designs and development methodology.designs and development methodology. At end of 60’s accounting and payroll were invented.At end of 60’s accounting and payroll were invented. The next stage of business application of computers was mainly on The next stage of business application of computers was mainly on

inventory management & control systemsinventory management & control systems

70’s:70’s: It was the period when they invented the Material Requirement Planning It was the period when they invented the Material Requirement Planning

(MRP).(MRP). MRP utilizes s/w applications for scheduling production processes.MRP utilizes s/w applications for scheduling production processes. MRP generates schedules for the operations and the raw material MRP generates schedules for the operations and the raw material

purchases based on the production requirements of finished goods, the purchases based on the production requirements of finished goods, the structure of the production system the current inventories levels etc.structure of the production system the current inventories levels etc.

MRP asks the following questions:MRP asks the following questions: What products are we going to make?What products are we going to make? What are the materials needed to make the products?What are the materials needed to make the products? What are the materials that we have in stock?What are the materials that we have in stock? What are the items that need to be purchased?What are the items that need to be purchased?

80’s:80’s: The next logical step to MRP was the invention of MRP II – Manufacturing The next logical step to MRP was the invention of MRP II – Manufacturing

resource planningresource planning It contains additional capabilities like managing sales and operational It contains additional capabilities like managing sales and operational

planning, financial interface and better decision making.planning, financial interface and better decision making. Still MRP II in any organization works in an isolated manner.Still MRP II in any organization works in an isolated manner.

1990’s:1990’s: Further development of MRP II incorporated the business functions like human Further development of MRP II incorporated the business functions like human

resources, management functions, distribution functions, financial accounting resources, management functions, distribution functions, financial accounting and management functions. and management functions.

This covers all the area of an organization and is called as ERP.This covers all the area of an organization and is called as ERP. ERP is a s/w which designed to model and automates all basic processes and ERP is a s/w which designed to model and automates all basic processes and

functions of an enterprise from Finance to shop floor with the integrating functions of an enterprise from Finance to shop floor with the integrating information acr66oss company and eliminating complex computer systems.information acr66oss company and eliminating complex computer systems.

WHY ERP IS IMPORTANT TO A COMPANYWHY ERP IS IMPORTANT TO A COMPANY Changed almost all organization irrespective of the size and natureChanged almost all organization irrespective of the size and nature Forces the competition to change their strategies and processesForces the competition to change their strategies and processes Influences business partners to become more competitiveInfluences business partners to become more competitive Improves the profits of the consulting organizationsImproves the profits of the consulting organizations Is the most important tool for business process reengineeringIs the most important tool for business process reengineering Enforces best practice of client server computing to deliver an enterprise Enforces best practice of client server computing to deliver an enterprise

productproduct Fully utilizes the true potential of client server computing to deliver an Fully utilizes the true potential of client server computing to deliver an

enterprise productenterprise product Changes the nature of the information systems functions and IT professionalsChanges the nature of the information systems functions and IT professionals Changes the nature of jobs in all functional business areasChanges the nature of jobs in all functional business areas Implementation is very costlyImplementation is very costly

Installing ERP systems has many advantages – both direct and indirect Installing ERP systems has many advantages – both direct and indirect advantages.advantages.

Some benefits are tangible and some are intangible.Some benefits are tangible and some are intangible. Tangible benefits that can be counted in quantity.Tangible benefits that can be counted in quantity. Intangible benefits that cannot be counted in quantityIntangible benefits that cannot be counted in quantity..

The figure below shows some of the tangible and intangible benefits of ERP The figure below shows some of the tangible and intangible benefits of ERP based on the multiple answers per respondent Deloitte Consulting Ltd.based on the multiple answers per respondent Deloitte Consulting Ltd.

32

27

26

20

19

14

12

11

9

11

7

6

Inventory Reduction

Personal Reduction

Productivity Improvements

Other Management Improvements

Financial Close Cycle Reduction

IT Cost Reductions

Procurement Costs Reductions

Cash Management Improvements

Revenue/Profit Increases

Transportation/Logistics Cost Reduction

Maintenance Reduction

On-time Delivery Improvements

TANGIBLE BENEFITS OF ERP

55

24

22

14

13

12

9

7

8

5

Information Visibility

New improved process

Customer Responsiveness

Cost Reduction

Integration

Standardization

Flexibility

Globalization

Technology

Business Performance

INTANGIBLE BENEFITS OF ERP

INFORMATION INTEGRATION:INFORMATION INTEGRATION:

The ERP systems are called integrated because they have the ability to The ERP systems are called integrated because they have the ability to automatically update data between related business functions and automatically update data between related business functions and components.components.

Example: Example:

You need only to update the status of an order at one place, say in the You need only to update the status of an order at one place, say in the order – processing system and all the other components will order – processing system and all the other components will automatically get updated.automatically get updated.

This information integration leads to better decision – making and This information integration leads to better decision – making and resolution of problems.resolution of problems.

Another advantage of this integration is that the people who are involved Another advantage of this integration is that the people who are involved in a project are also connected to each other. in a project are also connected to each other.

This kind of information integration in any organization has tremendous This kind of information integration in any organization has tremendous potential for improvement in productivity.potential for improvement in productivity.

REDUCTION OF LEAD – TIME:REDUCTION OF LEAD – TIME:

The elapsed time between placing an order and receiving it is known as the The elapsed time between placing an order and receiving it is known as the lead – time.lead – time.

The company should find out the minimum lead – time and should attempt The company should find out the minimum lead – time and should attempt to correct supplier’s delivery delays.to correct supplier’s delivery delays.

In order to reduce the lead – times the organization should have an efficient In order to reduce the lead – times the organization should have an efficient inventory management system, which is integrated with purchasing, inventory management system, which is integrated with purchasing, production planning and production dept.production planning and production dept.

For a company dealing with 100’s and 1000’s of raw materials and For a company dealing with 100’s and 1000’s of raw materials and components, keeping track of the lead – times for each and every individual components, keeping track of the lead – times for each and every individual item manually is a practically impossible task.item manually is a practically impossible task.

ERP systems help in automating this task and thus make inventory ERP systems help in automating this task and thus make inventory management more efficient and effective.management more efficient and effective.

So the ERP systems by virtue of their integrated nature, the use of latest So the ERP systems by virtue of their integrated nature, the use of latest technologies like EFT ( ELECTRONIC FUND TRANSFER ) & EDI technologies like EFT ( ELECTRONIC FUND TRANSFER ) & EDI (ELECTRONIC DATA INTERCHANGE) reduce the lead – times and make it (ELECTRONIC DATA INTERCHANGE) reduce the lead – times and make it possible for organizations to have the items at the time they are needed .possible for organizations to have the items at the time they are needed .

ON- TIME SHIPMENT:ON- TIME SHIPMENT:

Today, companies must be able to deliver customer specific products with Today, companies must be able to deliver customer specific products with the lead – time standard, off – the – shelf products.the lead – time standard, off – the – shelf products.

They must be able to change the mode of production from make – to – They must be able to change the mode of production from make – to – stock to make – to – order, yet retain the cost and time advantages of the stock to make – to – order, yet retain the cost and time advantages of the off – the – shelf products.off – the – shelf products.

With the ERP systems, business are not limited to a single manufacturing With the ERP systems, business are not limited to a single manufacturing method, instead many manufacturing and planning methods can be method, instead many manufacturing and planning methods can be combined within the same operation, with unlimited flexibility to choose the combined within the same operation, with unlimited flexibility to choose the best method – or combination of methods.best method – or combination of methods.

ERP systems are designed to help your company trim data transfer time, ERP systems are designed to help your company trim data transfer time, reduce errors and increase design productivity by providing an automated reduce errors and increase design productivity by providing an automated link between engineering and production information.link between engineering and production information.

REDUCTION IN CYCLE TIME:REDUCTION IN CYCLE TIME:

Cycle time is the time between placement of the order and delivery of the Cycle time is the time between placement of the order and delivery of the product.product.

The cycle time and the cost of production is high when we consider both the The cycle time and the cost of production is high when we consider both the methods make – to – order and make – to – stock.methods make – to – order and make – to – stock.

In the both cases, the cycle time can be reduced by the ERP systems.In the both cases, the cycle time can be reduced by the ERP systems.

But the reduction will be more in the case of make – to – order systems.But the reduction will be more in the case of make – to – order systems.

In the make – to – stock, the items are already manufactured and kept in In the make – to – stock, the items are already manufactured and kept in warehouses for sales.warehouses for sales.

The cycle time is not reduced in the shop floor but during the order The cycle time is not reduced in the shop floor but during the order fulfillment.fulfillment.

IMPROVED RESOURCE UTILISATION:IMPROVED RESOURCE UTILISATION: As manufacturing processes become more sophisticated and as the As manufacturing processes become more sophisticated and as the

philosophies of elimination of waste and constraint management achieve philosophies of elimination of waste and constraint management achieve broader acceptance, manufacturers place increased emphasis upon broader acceptance, manufacturers place increased emphasis upon planning and controlling capacity.planning and controlling capacity.

The capacity planning features of most ERP systems offers both rough – cut The capacity planning features of most ERP systems offers both rough – cut and detailed capacity planning for improving the capacity and resource and detailed capacity planning for improving the capacity and resource utilization.utilization.

BETTER CUSTOMER SATISFACTION:BETTER CUSTOMER SATISFACTION: Customer satisfaction means meeting or exceeding customers requirements Customer satisfaction means meeting or exceeding customers requirements

for a product or service.for a product or service. Assessment of the degree of satisfaction is usually made on at least three Assessment of the degree of satisfaction is usually made on at least three

measures:measures: Whether the product or service includes the features that are most important to Whether the product or service includes the features that are most important to

the customer.the customer. Whether the company can respond to the customers demands in a timely Whether the company can respond to the customers demands in a timely

mannermanner Whether the product or service is free of defects and performs as expected.Whether the product or service is free of defects and performs as expected.

IMPROVED SUPPLIER PERFORMANCE:IMPROVED SUPPLIER PERFORMANCE:

The quality of the raw materials or components and the capability of the The quality of the raw materials or components and the capability of the vendor to deliver them on – time are of critical importance for the success of vendor to deliver them on – time are of critical importance for the success of any organization.any organization.

So an organization should choose its vendors or suppliers very carefully and So an organization should choose its vendors or suppliers very carefully and monitor their activities closely so that problem can be corrected before it can monitor their activities closely so that problem can be corrected before it can disrupt the functioning of the company.disrupt the functioning of the company.

ERP systems provide vendor management and procurement support tools ERP systems provide vendor management and procurement support tools designed to coordinate all aspects of the procurement process.designed to coordinate all aspects of the procurement process.

The quality management system in the ERP systems provides all the tools The quality management system in the ERP systems provides all the tools needed to implement total quality management programs within an needed to implement total quality management programs within an organization’s procurement function. organization’s procurement function.

INCREASED FLEXIBILITY:INCREASED FLEXIBILITY:

Flexibility is the key issue in the formulation of strategic plans in companies.Flexibility is the key issue in the formulation of strategic plans in companies. Flexibility means quickly changing something that is being done or changing Flexibility means quickly changing something that is being done or changing

to adjust to new product designs.to adjust to new product designs. Product flexibility is the ability of the operation to efficiently produce highly Product flexibility is the ability of the operation to efficiently produce highly

customized and unique products.customized and unique products. ERP systems not only improve the flexibility of the manufacturing operations ERP systems not only improve the flexibility of the manufacturing operations

but also the flexibility of the organization as a whole.but also the flexibility of the organization as a whole.

BETTER ANALYSIS AND PLANNING CAPABILITIES:BETTER ANALYSIS AND PLANNING CAPABILITIES:

ERP systems boost the planning functions by enabling the comprehensive ERP systems boost the planning functions by enabling the comprehensive and unified management of related business functions and their data.and unified management of related business functions and their data.

It helps to utilize fully many types of decision support systems and It helps to utilize fully many types of decision support systems and simulation functions, what – if analysis and so on.simulation functions, what – if analysis and so on.

The decision makers can get the information they want, thus enaling them The decision makers can get the information they want, thus enaling them to make better and more informed decisions.to make better and more informed decisions.

REDUCED QUALITY COSTS:REDUCED QUALITY COSTS: Quality is defined in many ways – excellence, conformance to Quality is defined in many ways – excellence, conformance to

specifications, fitness for the value for the price and so on.specifications, fitness for the value for the price and so on. The American Society for Quality Control (ASQC) had developed a typology The American Society for Quality Control (ASQC) had developed a typology

of quality related costs that are based on the work of several quality of quality related costs that are based on the work of several quality masters.masters.

The typology has four categories:The typology has four categories: Internal failure costs (cost of scarp, re – inspection and low production Internal failure costs (cost of scarp, re – inspection and low production

items that are detected before they leave the company).items that are detected before they leave the company). External failure costs ( warranty claims, repairs and service costs that External failure costs ( warranty claims, repairs and service costs that

result when the failure is detected in the market place).result when the failure is detected in the market place). Appraisal costs (cost of inspecting upon arrival, during manufacture, in Appraisal costs (cost of inspecting upon arrival, during manufacture, in

laboratory tests and by outside inspectors).laboratory tests and by outside inspectors). Prevention costs (design and development of new quality equipment, Prevention costs (design and development of new quality equipment,

evaluation costs of a new product or service, training of quality evaluation costs of a new product or service, training of quality personnel.personnel.

Specification control systems in ERP packages offer a Specification control systems in ERP packages offer a state – of – art approach for documenting specifications and enable an state – of – art approach for documenting specifications and enable an organization to standardize and simplify its quality assurance and organization to standardize and simplify its quality assurance and control functions.control functions.

IMPROVED INFORMATION ACCURACY & DECISION – MAKING CAPABILITY:IMPROVED INFORMATION ACCURACY & DECISION – MAKING CAPABILITY:

In today’s competitive business environment, the key resource of every In today’s competitive business environment, the key resource of every organization is information.organization is information.

The three fundamental characteristics of information are accuracy, relevancy, The three fundamental characteristics of information are accuracy, relevancy, and timeliness.and timeliness.

This is the strength of ERP systems integration and automation and that is This is the strength of ERP systems integration and automation and that is why implementation of and ERP system will help in improving the information, why implementation of and ERP system will help in improving the information, accuracy and will help in better decision making.accuracy and will help in better decision making.

USE OF LATEST TECHNOLOGY:USE OF LATEST TECHNOLOGY:

ERP package vendors revitalized that in order to grow and to sustain that ERP package vendors revitalized that in order to grow and to sustain that growth they would have to embrace the latest development in the field of growth they would have to embrace the latest development in the field of information technology.information technology.

It is this quick adaptation to the latest changes in IT that makes the flexible It is this quick adaptation to the latest changes in IT that makes the flexible adaptation to changes in future development environment possible.adaptation to changes in future development environment possible.

It is this flexibility that makes the incorporation of the latest technology It is this flexibility that makes the incorporation of the latest technology possible during system designing, development and maintenance phases.possible during system designing, development and maintenance phases.

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