literature review on enterprise resource planning (erp)

8/22/2019 Literature Review on Enterprise Resource Planning (ERP)

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Practical-1

Aim: Literature Review on Enterprise Resource Planning (ERP).

Nowadays one of the significant competitive advantages in business is to faster the supply chain.

This can happen with a better strategic technology planning and often incorporation ofInformation System (IS) to manage this process more effective and efficiently. Those IS are the

roots of todays Enterprise Resource Planning (ERP) systems. During the 90s ERP system was

the major business generators for the IT sector, while nowadays more companies are orientedtowards off-the-shelf solution.

Common problems are misfits an ERP system has related to certain business process. These

misfits resolution is tradeoffs between organizational changes and IS customization. They also

explain that a misfit analysis must be carried out early in the process.Moreover, comprehensive understanding of the critical organizational processes and detailed

knowledge of this complex software are required. ERPs are considered complex and painful to

implement mainly because they force an organization to change its way of working as well asthey are considerable expense, with long return on investment value. Implementing an ERPsystem takes from one to five years. Due to those and other factors some organization found

them in situation, where buying an ERP system cost them times cheaper than installing and

maintaining it. Often those issues lead organizations to cancel or drop of the idea ofimplementing particular ERP.

ERP system ascustomizable, standard application software which includes integrated business

solutions for the core processes (e.g. production planning and control, warehouse management)and the main administrative functions (e.g., accounting, human resource management) of an

enterprise.

Two tier enterprise resource planning

Two-tier ERP software and hardware lets companies run the equivalent of two ERP systems atonce: one at the corporate level and one at the division or subsidiary level. For example, a

manufacturing company uses an ERP system to manage across the organization. This company

uses independent global or regional distribution, production or sales centers, and service

providers to support the main companys customers. Each independent center or subsidiary mayhave their own business model, workflows, and business processes.

Given the realities of globalization, enterprises continuously evaluate how to optimize theirregional, divisional, and product or manufacturing strategies to support strategic goals and

reduce time-to-market while increasing profitability and delivering value. With two-tier ERP, the

regional distribution, production, or sales centers and service providers continue operating undertheir own business modelseparate from the main company, using their own ERP systems.


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Since these smaller companies' processes and workflows are not tied to main company's

processes and workflows, they can respond to local business requirements in multiple locations.

Factors affecting enterprises adopting two-tier ERP systems are the globalization of

manufacturing or the economics of sourcing in emerging economies, the potential for quicker

and less costly ERP implementations at subsidiaries based on selecting a software product moresuited to smaller companies, and any extra effort required where data must pass between the two

ERP systems. Two-tier ERP strategies give enterprises agility in responding to market demands

and in aligning IT systems at a corporate level while inevitably resulting in more systems ascompared to one ERP system used throughout the entire organization.

ERP systems functionality

Financials Ensure compliance and predictability of business performance so organization

can gain a deeper financial insight across the enterprise and tighten control of finances. Theyautomate financial and management accounting and financial supply chain management.

Human Capital Management Optimize human resource processes with a complete,

integrated, and global human capital management solution. Organizations can maximize thepotential of workforce, while supporting innovation, growth, and flexibility. They can automate

talent management, core HR processes, and workforce deployment enabling increased

efficiency and better compliance with changing global and local regulations.

Operations Manage end-to-end procurement and logistics business processes for complete

business cycles including Bill of Materials, Order Management, Rough Cut Capacity Planning,

Material Requirements, Planning, Capacity Requirements Planning, Purchasing, InventoryManagement, Shop Floor Control, Forecasting, Demand Management, Master Production

Scheduling, Product Costing.

Corporate Services Helps organizations manage their most cost-intensive corporate

functions by supporting and streamlining administrative processes in the areas of real estate;

enterprise assets; project portfolios; corporate travel; environment, health, and safetycompliance; quality; and global trade services.

Others - Depending on the ERP software, functionality goes into different modules. However

common functionality is Product Configuration, Distribution Requirements Planning, QualityAssurance/Management, Customer Service Management, Flexible Report Writer, Multi-site and

Multi-National, Sales and Operations Planning, Finite Scheduling, Maintenance Management,

Warehouse Management, Transportation Management, Supply Chain Execution Management,Manufacturing Execution Systems, etc.


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ERP Characteristics

ERP (Enterprise Resource Planning) systems typically include the following characteristics:

An integrated system that operates in real time (or next to real-time), without relying onperiodic update.

A common database, which supports all applications. A consistent look and feel throughout each module. Installation of the system without elaborate application/data integration by the

Information Technology (IT) department provided the implementation is not done in

small step.

ERP Components

Transactional database Management portal/dashboard Business intelligence system Customizable reporting Simple resource planning - Who Is Doing what and When? Analyzing the product External access via technology such as web services Search Document management Messaging/chat/wiki Workflow management

Connectivity to plant floor information

ERP systems connect to realtime data and transaction data in a variety of ways. These systems

are typically configured by systems integrators, who bring unique knowledge on process,

equipment, and vendor solutions.

Direct integrationERP systems have connectivity (communications to plant floor equipment)

as part of their product offering. This requires the vendors to offer specific support for the plant

floor equipment that their customers operate. ERP vendors must be expert in their own products,and connectivity to other vendor products, including competitors.

Database integrationERP systems connect to plant floor data sources through staging tablesin a database. Plant floor systems deposit the necessary information into the database. The ERP

system reads the information in the table. The benefit of staging is that ERP vendors do not need

to master the complexities of equipment integration. Connectivity becomes the responsibility ofthe systems integrator.
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Enterprise appliance transaction modules (EATM)these devices communicate directly withplant floor equipment and with the ERP system via methods supported by the ERP system.

EATM can employ a staging table, Web Services, or systemspecific program interfaces (APIs).

The benefit of an EATM is that it offers an offtheshelf solution.

Customintegration solutionsmany system integrators offer custom solutions. These systems

tend to have the highest level of initial integration cost, and can have a higher long termmaintenance and reliability costs. Long term costs can be minimized through careful system

testing and thorough documentation. Customintegrated solutions typically run on workstation

or server class computers.

Modularity

Most systems are modular, to permit automating some functions but not others. Some common

modules, such as finance and accounting, are adopted by nearly all users; others such as humanresource management are not. For example, a service company probably has no need for a

manufacturing module. Other companies already have a system they believe is adequate.

Generally speaking, the greater the number of modules selected, the greater the integration

benefits, but also the greater the costs, risks, and changes involved.

Advantages

The fundamental advantage of ERP is that integrating myriad businesses processes saves timeand expense. Management can make decisions faster and with fewer errors. Data becomes

visible across the organization. Tasks that benefit from this integration include:

Sales forecasting, which allows inventory optimization? Chronological history of every transaction through relevant data compilation in every

area of operation.

Order tracking, from acceptance through fulfillment. Revenue tracking, from invoice through cash receipt. Matching purchase orders (what was ordered), inventory receipts (what arrived), and

costing (what the vendor invoiced)

ERP systems centralize business data, which:

Eliminates the need to synchronize changes between multiple systemsconsolidation offinance, marketing, sales, human resource, and manufacturing applications.

Brings legitimacy and transparency to each bit of statistical data. Facilitates standard product naming/coding. Provides a comprehensive enterprise view (no "islands of information"), making real

time information available to management anywhere, any time to make proper decisions

Protects sensitive data by consolidating multiple security systems into a single structure.
http://en.wikipedia.org/wiki/Enterprise_appliance_transaction_modulehttp://en.wikipedia.org/wiki/Apihttp://en.wikipedia.org/wiki/Invoicehttp://en.wikipedia.org/wiki/Purchase_orderhttp://en.wikipedia.org/wiki/Costhttp://en.wikipedia.org/wiki/Product_naming_conventionhttp://en.wikipedia.org/wiki/Product_naming_conventionhttp://en.wikipedia.org/wiki/Costhttp://en.wikipedia.org/wiki/Purchase_orderhttp://en.wikipedia.org/wiki/Invoicehttp://en.wikipedia.org/wiki/Apihttp://en.wikipedia.org/wiki/Enterprise_appliance_transaction_module


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Benefits

ERP can greatly improve the quality and efficiency of a business. By keeping acompany's internal business process running smoothly, ERP can lead to better outputsthat benefit the company such as customer service, and manufacturing.

ERP provides support to upper level management to provide them with critical decisionmaking information. This decision support allows the upper level management to make

managerial choices that enhance the business down the road.

ERP also creates a more agile company that better adapts to change. ERP makes acompany more flexible and less rigidly structured so organization components operate

more cohesively, enhancing the businessinternally and externally.

Disadvantages

Customization is problematic. Re-engineering business processes to fit the ERP system may damage competitiveness or

divert focus from other critical activities. ERP can cost more than less integrated or less comprehensive solutions. High ERP switching costs can increase the ERP vendor's negotiating power, which can

increase support, maintenance, and upgrade expenses.

Overcoming resistance to sharing sensitive information between departments can divertmanagement attention.

Integration of truly independent businesses can create unnecessary dependencies. Extensive training requirements take resources from daily operations. Due to ERP's architecture (OLTP, On-Line Transaction Processing) ERP systems are not

well suited for production planning and supply chain management (SCM).

Harmonization of ERP systems can be a mammoth task (especially for big companies)and requires a lot of time, planning, and money.

Recognized ERP limitations have sparked new trends in ERP application development.

Development is taking place in four significant areas: more flexible ERP, Web-enable ERP,inter-enterprise ERP, and e-business suites.

Conclusion

In this paper we discussed what ERPs are and how an organization can benefit from

implementing one.. In conclusion, IS, and ERP in particular, implementations are projects withhigh risk, which

Require appropriate management. Organizations planning to implement ERP must learn how to

Identify the critical issues that affect the implementation process and know when in the processTo address them effectively to ensure that the promised benefits can be realized and potential

Failures can be avoided.

Future research can be done of analyzing the gap between ERP theory and their actual Practical

use and implementation.


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References:

1. Al-Mashari, M., Al-Mudimigh, A., Zairi, M. (2003). Enterprise resource planning: A

taxonomy of critical factors, European Journal of Operational Research, Volume 146,

Issue 2, 16 April 2003, pp. 352-364, ISSN 0377-2217.

2. Gupta, A. (2000) "Enterprise resource planning: the emerging organizational value

systems", Industrial Management & Data Systems, Volume 100, Issue 3, pp.114118.

3.http://en.wikipedia.org/wiki/Enterprise_resource_planning.

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