ERP SYSTEMS

I.K. International Publishing House Pvt. Ltd.

NEW DELHI • BANGALORE

Dimpi SrivastavaM.C.A., M. Phil., M.Tech.

Sr. Lecturer, Department of Computer ApplicationM.I.E.T Group of Institutions, Meerut

Aarti BatraM.C.A., M.Tech.

Lecturer, Department of Computer ApplicationM.I.E.T Group of Institutions, Meerut

ERP SYSTEMS

Published byI.K. International Publishing House Pvt. Ltd.S-25, Green Park ExtensionUphaar Cinema MarketNew Delhi–110 016 (India)E-mail : info@ikinternational.com

ISBN 978-93-80578-15-6

© 2010 I.K. International Publishing House Pvt. Ltd.

All rights reserved. No part of this publication may be reproduced, stored in a retrievalsystem, or transmitted in any form or any means: electronic, mechanical, photocopying,recording, or otherwise, without the prior written permission from the publisher.

Published by Krishan Makhijani for I.K. International Publishing House Pvt. Ltd., S-25,Green Park Extension, Uphaar Cinema Market, New Delhi–110 016 and Printed by RekhaPrinters Pvt. Ltd., Okhla Industrial Area, Phase II, New Delhi–110 020.

Dedicated toour parents and family

The entire concept of ERP systems is based on the premise that for successful management ofenterprise, as a whole, an enterprise-wide information system is a requisite. ERP systemsintegrate accounting, distribution, manufacturing, human resources, payroll and other businessprocesses into a single integrated application. Selection of right ERP package as well as rightERP vendor will mark the success of ERP implementation.

This book on ERP systems provides a glimpse on the evolution of ERP, its benefits, ERPmarket and the life cycle of ERP. It elaborates the ERP system concepts, implementationstrategies and methodologies. The book has been written in a simple and easy to understandlanguage. It covers the latest syllabi of ERP systems for B. Tech., M.C.A and M.B.A studentsof various universities. Learning points included in the chapters will serve as a useful learningtool for the students. Review exercise provided at the end of each chapter will also provideuseful practice session to the students.

We take this opportunity to express our gratitude to col. Dr. D.K. Bhola, Dr. PushpendraSingh Dhama, Dr. Swati Singh, Dr. Rupal Joshi, Dr. Anita Rawat, Mr. S.P. Singh, Ms. SavitaKumari Singh, Ms. Shilpi Khanna, Ms. Prerna Garg, Mrs. Abhilasha, Mr. Tanweer Alam,Mr. Dinesh Khushwaha, Mr V.P. Maurya, Mr. Jyotirmay Patel, Mr. Vinod Kumar, Mr. NagreshSingh Mrs. Nitasha Varshney, Mr. Santosh Prasad Gupta, Mr. Gufran Ahmad Ansari, Mr. Yogesh,Mr. Shivpoojan Singh, Mr. Vivek Kumar Goel, Mr. Mohammad Vakil, Mrs. Kumud Arora,Dr. V.B. Dhawan, Mr. Sunil Kumar Pandey, Mr. P.K. Bharti, Sh. Bhagwan Dutt Batra,Mr. Deepak Bagchi, for their support and well wishes.

We specially want to thank Dr. Mayank Garg, Director, MIT, Meerut for his whole-heartedsupport to this endeavour.

Constructive suggestions and comments for the future improvement of this volume areinvited.

Dimpi SrivastavaAarti Batra

PREFACE

Preface vii

1. AN INTRODUCTION TO ERP 11.1 Characteristics of ERP Systems 1

1.1.1 Why do Companies Need ERP? 21.2 Evolution of ERP 31.3 Myths about ERP 6

1.3.1 Evolving Realities 61.4 ERP Benefits 71.5 Custom Built and Packaged Approaches 10

2. ERP LIFE CYCLE 212.1 ERP Life cycle 21

2.1.1 ERP Life Cycle, as Suggested by Markus & Tanis 212.1.2 ERP Life Cycle Framework by Esteves and Pastor 23

3. ERP MARKET 323.1 Indian ERP Market 323.2 Global ERP Market 333.3 ERP in Large Enterprises 353.4 ERP for Small and Medium Enterprises 35

3.4.1 Open Source ERP in SME’s 373.4.2 Understanding the Tiers in SMB 37

3.5 ERP Market Players 373.5.1 SAP’s Profile and its Products 38

3.5.1.1 SAP R/3 383.5.2 Baan’s Profile and its Products 383.5.3 Oracle Corporation’s Profile and its Products 393.5.4 QAD 393.5.5 System Software Associates, Inc. (SSA) 393.5.6 Ramco 393.5.7 PeopleSoft Inc. 403.5.8 JD Edwards World Solutions Company 40

4. ERP MODULES 574.1 Manufacturing 584.2 Finance 61

CONTENTS

x Contents

4.3 Sales and Distribution 644.4 Plant and Maintenance 664.5 Materials Management 674.6 Human Resource 694.7 Quality Management 70

5. FRAMEWORK FOR EVALUATING ERP ACQUISITION 905.1 Framework for Evaluating ERP Acquisition 90

6. ANALYTICAL HIERARCHY PROCESS 1106.1 Analytical Hierarchy Process Method 110

7. ERP IMPLEMENTATION 1187.1 ERP Implementation Phases 1187.2 Implementation Strategies 1247.3 Implementation Approaches 126

7.3.1 Big-Bang Approach 1277.3.2 Skeleton or Phased Approach 1277.3.3 Parallel Approach 128

7.4 Implementation Methodology 1297.4.1 Accelerated SAP (ASAP) 1297.4.2 The Total Solution 1307.4.3 The Fast Track Work Plan 131

7.5 Role of Consultants, Vendors and Users in ERP Implementation 1317.5.1 Role of ERP Vendors 1327.5.2 ERP Consultants 1337.5.3 End-Users 134

7.6 Critical Success Factors 1357.6.1 Holland and Light’s Critical Success Factor Model 1357.6.2 Unified Critical Success Factor Model 1367.6.3 Factors for ERP Implementation Failure 139

7.7 ERP Effectiveness Model 1397.8 Hidden Cost in ERP Implementation 1427.9 ERP Success Inhibitors and Accelerators 1437.10 Useful Guidelines for ERP Implementation 1457.11 Return on Investment of ERP Implementation 146

8. SOFT SYSTEM APPROACH 1808.1 Soft Systems Methodology 1808.2 SSM as a Tool for Analyzing ERP 184

9. ERP AND RELATED TECHNOLOGIES 1969.1 Management Information System 1979.2 Decision Support System 197

Contents xi

9.3 Executive Information System 1999.4 Business Process Reengineering 1999.5 Supply Chain Management 200

9.5.1 Push and Pull Approaches 2009.5.2 Elements of Supply Chain Management 2029.5.3 Functions in Supply Chain Management 202

9.6 Customer Relationship Management 2039.6.1 Elements of a CRM System 204

9.7 ERP and E-Commerce 2049.8 Data Mining, OLAP and Data Warehousing 206

9.8.1 Data Warehouse 2069.8.2 OLAP 2079.8.3 Data Mining 209

10. ERP—A MANUFACTURING PERSPECTIVE 24610.1 Various Manufacturing Modes 24610.2 Manufacturing Strategy 247

10.2.1 Just-in-Time Manufacturing 24810.3 Types of Manufacturing Information System 248

11. LEARNING AND EMERGING ISSUES 26611.1 Emerging Issues 26611.2 Learning Issues 267

11.2.1 Customization 26811.2.2 Data Migration 269

11.3 Management Concern for ERP Success 26911.4 Trends in ERP 27011.5 Future of ERP 27211.6 Extended ERP 272

References 291

Index 293

1An Introduction to ERP

• ERP Systems• Characteristics of ERP Systems• Evolution of ERP• Myths about ERP• ERP Benefits and• Custom built and Packaged approaches

HIGHLIGHTS

Information technology and information systems enable the firms to gain a competitive advantage.Today, extensive information systems are required that can automate and integrate the businessinformation and processes. An enterprise-wide information system integrates all aspects of abusiness to support business strategies for better decision making and faster response time.Enterprise Resource Planning (ERP) systems can, in essence, be thought of as enterprise-wideinformation system. Today, ERP systems are becoming more and more powerful as new frontiersfor ERP are continuously being explored.

Enterprise Resource Planning is a complex information system that provides a seamlessintegration of information flow throughout the organization. ERP systems, today, serve as asignificant strategic tool of competition. K. Kumar and J.V. Hillegersberg define ERP systemsas “configurable information system packages that integrate information and information-basedprocesses within and across functional areas in an organization.”

J. Manetti defines ERP as “a method for effective planning and control of all resourcesneeded to take, make, ship and account for customer order.”

1.1 CHARACTERISTICS OF ERP SYSTEMS

ERP systems have the following characteristics:

Chapter

2 ERP Systems

1. ERP systems are large scale, end-to-end business processing systems.2. ERP systems provide easy and secure access to information in a real-time environment.3. ERP systems are function-rich and integrate majority of a business’s processes and

operations.4. ERP systems affect major departments in a company and tend to create changes in many

business processes of the organization.5. ERP systems are commercial software packages that are either designed as mainframe

applications or designed to work on a client server environment.6. An ERP software package can be customized to suit the specific business’s needs of any

organization.7. ERP systems provide support for multiple currencies and languages.8. An ERP system makes use of an enterprise-wide database to provide timely, relevant and

shared information in an easy-to-use format.

1.1.1 Why do Companies Need ERP?

In the 1980’s, companies used big mainframe computers that performed calculations (e.g., MRPsystem) and managed the financial records. Personal computers (PC’s) were provided to everymanager in every department to help them become efficient and thus, work better. But both themainframes and PC’s had their own limitations. While mainframes didn’t provide timely andrelevant information, the PC’s could not store huge corporate databases.

The need for systems that could integrate all information flow in the company and at thesame time make an efficient use of desktop technology gave way to the current ERP systems.ERP systems brought together MRP-II systems and the client/server technologies to provide forthe following:

1. Integrating all the business functions of the enterprise.2. Integrating all the systems running in different locations.3. Transparency of information across the whole organization.

Figure 1.1 shows the pre-ERP scenario, in which, most departments had their own databaseand information systems which were not integrated with each other. As a result, the performanceof the organization was not very good. With the arrival of ERP systems, as shown in Figure 1.2,business functions throughout the organization were integrated with each other. A single enterprisewide database system shared throughout an enterprise resulted in far better performance andimproved quality.

LEARNING POINTS

1. An enterprise-wide information system integrates all aspects of a business to support allbusiness strategies for better decision making and faster response time.

2. Enterprise Resource Planning (ERP) systems can, in essence, be thought of as enterprise-wide information system.

3. J. Manetti defines ERP as “a method for effective planning and control of all resourcesneeded to take, make, ship and account for customer order.”

An Introduction to ERP 3

4. ERP systems are function-rich and integrate majority of a business’s processes and operations.5. ERP systems provide support for multiple currencies and languages.

1.2 EVOLUTION OF ERP

ERP plays a significant role within corporations today. ERP systems have gradually evolvedfrom inventory management and control systems (1960’s) to ERP-II (2000 onwards). In 1960’sinventory management and control systems were used by the organizations to maintain anappropriate level of stock in the warehouse. Inventory management activities included identifyinginventory shortage, providing replenishment techniques, monitoring inventory usage, reconcilingthe inventory balance and reporting stock status.

During 1970’s many companies realized that by properly planning inventory requirements,unnecessary piling of large volumes of inventory could be avoided. This realization led to materialsrequirement planning (MRP) systems. Materials requirement planning utilizes computerized

Fig. 1.1. Pre-ERP Information system

ERP Systems

Publisher : IK International ISBN : 9789380578149Author : Dimpi Srivastava,Aarti Batra

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