What is ERP system?

Enterprise Resource Planning Systems: ERP stands for Enterprise Resource Planning. It
integrates all data and processes of an organization into one single and centralized system.
These systems comprise of many components of hardware and software, in order to achieve
integration from various departments in the organization. It uses a single database to store data
for various functions of the organization.

ERP is a term originally derived from MRP II (Manufacturing Resource Planning) that followed
material requirements planning (MRP). MRP is typically handle the manufacturing process for
company and ERP systems handle the logistics, sales and distribution, inventory, shipping,
finance, and accounting along with manufacturing. Earlier this integrated system was useful for
large organizations only to handle their wide resources, but nowadays use of ERP has changed
and is extremely comprehensive, today it can refer to any type of company, small/medium/large.
Enterprise Resource Planning is an industry term for the broad set of activities that helps to
integrate all the functions of the organization such as manufacturing, supply chain management,
financials, projects, human resources and customer relationship management.

ERP software applications can be used to manage product planning, purchase, inventory,
interacting with suppliers, customer relationship management service, and order tracking.
Enterprise Resource Planning software provides a bird’s eye view to the management to control
the business activities, including sales, marketing, dispatch, billing, production management,
inventory management, quality management and personal management. Software system can be
considered as ERP if providing an organization with functionality for two or more systems.

An Ideal ERP consists of following modules –

Manufacturing: MRP, Production Planning, Workflow Management, Quality Control, BOM,

Manufacturing Process, etc
Financial: A/c Payable, A/c Receivable, Fixed Asset, General Ledger, Cash Management, Work
Center, Chart of Account etc
Inventory: GRN, Gate Pass, Quality Check, Inventory Management, ABC Analysis, Fast Moving
Items, etc.
Purchase: Supplier Scheduling, Order Entry, Purchase Order, Purchase Order Amendment, etc.
Sales: Pre-sales activities, Post sales activities, CRM, Sales and Marketing, Commission,
Customer Contacts, Customer Supports, etc.
HRM: Benefits, Attendance, Training, Recruiting, Payroll, Appraisal, Interview, Employee
Masters, etc.

ERP Software History

ERP or Enterprise Resource Planning evolved from MRP also known as Manufacturing
Requirement Planning. Earlier, enterprise resource planning software was used for automating
the manufacturing units, but now you can see various modules such as human resource
planning, project planning, appraisals, recruitments, training, mailing features and even share
trade in the ERP software.

There have been many changes in the last few decades in ERP software. There are basically two
types of evolutions found in this software:
1. Functional Evolution
2. Technological Evolution
In 60s, the first company to launch the concept of automation software was formed by IBM and
J.I. Case. In the sixties decade, enterprise resource planning software was used, mainly, for
inventory management and inventory control. The inventory management processes included the
listing of inventory requirements and defining targets. The inventory management software
provided features of monitoring inventory and giving inventory reports.

In 70s, the material requirement planning process was introduced, which is also known as MRP.
MRP software defines the schedule of operation and purchase of raw material based on the
needs of the production units. In 70s, the MRP software was used to estimate the amount of raw
material needed for production and other operations of production was also managed through
software. In 1972, SAP was formed to provide business solutions to enterprises. In 1977, Oracle
was formed by Larry Ellison and in 1979, relational database SQL was launched by Oracle.

In 80s, the ERP software was backed by improved software and operating system. The use of
this software started from the planning phases, where the quantity of item needed for production
was defined and the product planning was also done through software. The inventory and product
distribution was also managed through this software. In technological area, in 1981, Baan started
using UNIX as main OS.

In 2000, the technological advancement enabled enterprise resource planning software to run on
internet and the customers sitting in various parts of the world could place their order for a
product by just selecting the product on their home computer and making payment through credit
cards or other online payment options.

In 2004, service oriented design of ERP was introduced, where the software designed on
different platforms could communicate with each other and software products designed by
different vendors could be merged together as per the needs of the customers.

Many major enterprise resource planning software companies merged in the 2000 decade - to
design multipurpose and multiuser software. Oracle acquired PeopleSoft and Seibel, and
Microsoft acquired Solomon, Navision, Great Plains and Axapta. ERP software is undergoing
many changes and the concept of ERP software-as-a-service (SaaS) has also been introduced.

Advantages of ERP
ERP is software which integrates all functionalities of the organization in a single database. It
streamlines all the business processes and gives desired result on a click of a button. Earlier ERP
was for big organization due to its cost, but now it is made for SMEs (Small and Medium
Enterprises) of different segments.
ERP software incorporates a large amount of industry specific business functionalities which will
ensure less customization or sometime no customization (except reports) to make the package
suitable to your business operations.
Most important advantage of ERP software is integration of all the business solution in a single
platform, which reduces unnecessary paper work, documentation, repeated entry, cycle time etc.
The software also comes with its framework of upgrades to changing technologies.

In the ERP software business functionalities and operating processes are built into standard
software codes, thus it require lesser time to understand process related issue of implementation
and gives industry specific best practices.
ERP software automates the business processes and also forces its own logic (industry specific)
on the business. Verticalization (industry specific) of ERP is increasingly becoming the buzzword
across all the ERP vendors. While the other standard solutions may give 55-65% to your
business, the same can be as high as 90% with industry specific solutions.

Accounting applications is another advantage of ERP. It can integrate the costing, profit, and
revenue information of sales that are made etc.
Other Advantages:
* Speeding up the whole manufacturing process
* Better and systematic inventory handling with ABC analysis
* WIP (work in progress) control
* Easy project management
* Accessing the status of the goods on a click of a button
* Fast transmit commodities through online transactions
* Fastens the creation of reports
* Reduce paper works and repeated entry
* Quick processing of information
* Serving the customer efficiently in time
* Solve the customer problem quickly
* Information based decision
* Better finance reports
* Better supply chain management
* Better vendor management
* Reduce process cycle time.

Disadvantages of ERP
ERP systems have many advantages like improve cycle time, automate the business process,
integrity of various departments, easy workflow, better reporting, etc. but it has also some
disadvantages due to inadequate investment in regular training for users, testing charges, limited
customization, reengineering of business process up to some extend, AMC charges for the
software and updates, difficult to use, etc.

Complete system can be expensive for your organization, although they are coming for SMEs at
lower cost too, but organization should be very careful in selecting the appropriate software that
fulfills their requirements in a budget. There are some limitations in customizations; some
customization may involve changing of the software structure which is usually not allowed.

Re-engineering of business processes to fit the "industry standard" prescribed by the ERP
system may create some problem to the user to understand, they may do some mistakes. New
system can be too complex measured against the actual needs of the customers. There is a risk
of loss of data in the event of a security breach, because of centralized database in the systems.
It has some limitations and do not allow much flexibility in implementation and usage. The new
system may be over-engineered relative to the actual needs of the customer. If implementation
fails, due to any reason, all the work done by organization in this project will be zero. Organization
should be very careful about implementation process.

There may be some compatibility problem between new technology and old legacy system like
organization may have to buy new database, new PCs, new servers to implement the software.
This will increase the cost of the project. If organization does not have IT department, they may
required a new IT manger to implement the system.
There are other disadvantages seen by the organizations who have implemented ERP system,
but they are very happy with advantages over disadvantages. Disadvantages cannot effect the
organization if planned well to implement the software.

Types of ERP Software

Types of ERP – SAP R/3, SAP B1, LN (BaaN), Microsoft Dynamics AX, Microsoft Dynamics
NAV, JD Edwards, Oracle Financials, PeopleSoft.

SAP R/3 is software from SAP. SAP is a world's leading provider of business software. SAP
software runs in more than 120 countries world wide with more than 86000 customers. SAP
solution is transforming your business process into a best-run business. SAP services are so
good; they provide superior services and supports.

SAP B1 (business one) software is also form SAP. It is made for SME (small and medium
enterprise) segment to fulfill their requirement at lower cost. SAP B1 localization is quite good. It
contains 15 core modules. Report module is discontinued in 2009 due to purchase of Business
Object, XL Reporter and Crystal Reports 2008 Basic(One Free License per customer)

LN/BaaN is software from Infor Global offers the breadth and depth of support for order-driven,
project-based discrete manufacturing. It increase user productivity, operational efficiency, better
control of processes, better communication and collaboration, enhance performance and
scalability, leverage IT infrastructure and information assets and reduce costs. LN is ideal for
companies in make-to-stock, assemble-to-order, make-to-order, or engineer-to-order
environments.

Microsoft Dynamics AX 2009 (Microsoft Axapta) is a comprehensive enterprise solution for mid-
sized and larger organizations to help people improve productivity. Microsoft Dynamics ERP
applications and services made for retailers, manufacturers, wholesale distributors, and service
companies, doing business domestically or in multiple countries.

Microsoft Dynamics NAV (Microsoft Navision) is an ERP software to assist with finance,
manufacturing, CRM (customer relationship management), SCM (supply chain management),
analytics and e-commerce for small and medium-sized enterprises.

JD Edward EnterpriseOne is an integrated applications suite of comprehensive enterprise

resource planning software from Oracle that combines business value, standards-based
technology, and deep industry experience into a business solution with a low total cost of
ownership.

Oracle E-Business Suite Financials is easy to operate shared services across businesses and
regions. It delivers pre-integrated financial and industry-specific processes. It provides consistent
financial and operational information, dynamic planning, budgeting and forecasting, multi-
dimensional profitability analysis, etc.

Oracle PeopleSoft Enterprise applications are designed for the most complex business
requirements. They provide comprehensive business and industry solutions, enabling
organizations to significantly improve performance, seamlessly integrate Web services into
heterogeneous application environments, and a broad choice of technology infrastructure.
Selection of ERP Vendor
ERP vendor selection is as much important as ERP software for successful implementation. ERP
vendor is key player and play responsible role for your project. If your vendor is good enough to
understand your business processes and able to match with the new integrated software, it
means 50% work is done and project is going in right direction. The company must initially
choose few vendors from vendors list. Before selecting the ERP vendor following things to be
considered properly:

* Vendor's stake in the market

* Vendor's background, previous experiences, clientele will help you to analyze the suitable
vendor for your organization
* Cost of implementation, acquisition, support and upgrade should not be very high
* Are business unit heads expected to contribute in the implementation initiative?
* Past implementation record of the vendor, especially in similar vertical with same software
* What are the technologies they are using?
* What is their experience in your vertical, will they have the good enough to understand your
business processes?
* What are the profiles of their consultants, analysts or technical specialists who they will send
for implementation?
* Check their past track record in project delivery
* What kind of risk mitigation plans and business continuity assurances do they offer?
* Their range of services and nature of the services offered by the implementation partner?
* Financial strength and long term goals of the vendor - This is important for the future support
for the package implemented by vendor. If the vendor strength is not good they may sell off to
another enterprise company and another company may interested in clientele only not support.
In this case situation will worse.

Selection of ERP Software

Things to Consider For Selection of ERP Software

ERP selection plays an important role in successful implementation. If the selection goes wrong
whole project will be fail and waste of money as well as time. There are some basic and important
criteria of selecting ERP software.

* Functionalities and features the software should match with the current business processes.
* Easy customization possibility will give double marks- the software package should provide
the ability to customize easily
* ERP software should be user friendly and easy to use and understand- This has an impact on
the acceptance of the system by employees and the cost of training.
* ERP software technology should not be very old. It should be made of new technology like
Web Services, SOAP etc.
* Scalability possibility whenever required
* Market share of the present time in similar vertical
* How good is software in your vertical
* What kind of warranty and guarantee is provided by the software company
* Cost of the software system
* Cost of AMC charges for software updates and upgrades
* What are the TCO (total cost of ownership)
* Hardware requirements for the new system
 * Server and PCs requirements for new system
* If software is web based, what are the things required for connectivity?
* What will be the customization cost
* Do not hurry in selecting the ERP software- the process could take anywhere between 1
months to 8 months.

ERP Implementation Strategy

ERP implementation is not an easy job; it requires proper planning and strategy. Organization
must prepare a blueprint of implementation before starting the project with the help of an expert
consultant or vendor and key person in the organization. Implementation strategy starts with
planning, organization must set a goal for ERP implementation. Selecting the right product is a
vital move.

Enterprise Resource Planning made for similar type of industries or vertical will be the smart
move. Project requires full attention of all involved employees. It touches almost every part of the
business. Categorization of implementation things should be divided in VED (Vital, Essential and
Desirable). Vital things should be implemented first and then essential and desirable.

Involve all the users in ERP implementation planning and executing. Ultimately, users will use this
software. It is better to trained all the users along with ERP implementation. This will create more
interest and better understanding in users. Set your budget at the largest level (double the
consulting firm's estimate). Usually, projects not completing in under the estimate. Don’t cut the
training cost, but be realistic about this. Don’t keep adding to your project in the planning and
implementation phase, desirable things can be eliminated to reduce the ERP implementation
cost. Get your ROI (return on investment) first and then add desirable things. Otherwise you will
have a never-ending project (unsuccessful project/failure of project). Look closely AMC (annual
maintenance cost), it should be transparent to you by your vendor if you are outsourcing
implementation.

Choose ERP of similar vertical and evaluate your processes carefully and decide if changing
them to fit a particular software would be good. You may customize the software as per your
requirement, but too much customization can ruin your budget. It is better to choose enterprise
software that can conform to your needs.

Check the vendor stability and ability by site visiting where they have implemented similar type of
implementation successfully. You can also discuss the vendor stability with outside experts. Look
for a company that adds and upgrades necessary features (tax, vat, excise, etc.) and doesn't lock
you into an expensive upgrade cycle.

ERP Implementation Obstacles

Once ERP software is selected and approved by management, you have the team together to
implement and enterprise resource planning system. Usually ERP implementation is a complex,
expensive, time-consuming process and it requires full attention of project manager, team
members, and users. Some general mistakes can turn a great idea into a failure. Ultimately the
best way to ensure that your erp implementation runs as efficiently as possible is to do all of your
groundwork in advance.

Implementation obstacles are lack of top management involvement in project, no project

management, lack of training, unwilling to adopt change, and selecting the wrong vendor or
software. To cope with these obstacles top management should realize the need of their
involvement and proper project planning. Usually top management does not realize their fault in
failure. In most of the organization top management involvement is up to introduction level only.

Implementation of ERP system requires management to make sure that the direction is embraced
on all levels; employees need to understand that the new system is going to assist them do their
jobs quickly and better. Top management has to support the project team by making sure it has
the resources, and financial to complete the project.

Choosing inappropriate group for implementation causes project failures. So choose the right
persons in the implementation group. Team members must come as representatives from all
relevant departments and make sure that the ERP software selection and implementation
process works for everyone. The team must be held answerable by top management for the
progress of the implementation.

Insufficient training to user is very big obstacle because ultimately the user will use the system
and make all the entries. Improper training will create dilemma, "how to do?", "what to do?" etc.
Make sure proper training module wise to all respective users. New system will require some
changes and people resist change. Successfully implementing an ERP requires that employees
let go of the practice they have developed over the years and let the new system take them
where they need to go.

Wrong software or vendor will surely end the project failure. Select an experienced vendor who
has implemented ERP system in similar type of industry and similar business size. Select
branded software that does what you require it to do and can manage increasing business
turnover as your business grows.

ERP Software Implementation Risk Factors

Enterprise Resource Planning is a high-end solution featuring integration of various business
processes data and its application. It seeks to streamline and integrate business processes and
information flows in the organization to integrate the resources. Each implementation is unique
and involves different risk factors. While implementation enterprise software organization should
be aware of those risk factors. To identify the various risk factors organization should be focused
on following points.

ERP Software Selection: Right selection of software is the key to successful implementation. If it
is chosen wrong, no software vendor can implement correctly according to your business
processes.

Implementation Process Steps: This should be predefined by the experts. Organization should
move according to the defined steps. In most of the cases, during implementation organizations
come to know about some functionality and want to add those functionalities at the same time.
This increases the project cost and timeframe, which results failure.

Implementation Partner Track Record: Organization should check the track record of vendor.
Implementation partner should have good implementation track record in similar type and size of
company. Organization may ask to vendor for client visit to see the running software and its
functionalities.

Business Process Mapping: Process mapping is pre-implementation work which is done by

organization with help of consultants or industry experts.
SRS Study: SRS (System Requirement Study) helps to understand the all requirements required
to implement enterprise software.

GAP Analysis: GAP analysis helps organization to identify gap between enterprise software and
present business processes. This helps in identifying the customization needs. Organization
should freeze the customization needs. This helps in preparing implementation road map,
timeframe for implementation and project cost analysis.

Analyze TCO: TCO (Total Cost of Ownership) should not be very high. Organization should
consider all costs viz. software, hardware, networking, training, implementation, customization,
services etc.

Implementation Road Map: It should step wise as per road map prepared by consultants. During
implementation one should not create wish list.

AMC Cost for Services: AMC (Annual Maintenance Cost) for services is very important. It is
recurring cost for long terms. It should be in your budget. I have seen few failures due to AMC.

AMC Cost for Software License: Organization must take AMC for software license. It covers
software updates, upgrades, new features and functionalities, etc. Before selecting the software,
this cost should also consider by an organization. SAP AMC cost is 21% yearly.

User Training: Detailed training is necessary for the users. Ultimately, user is going to use this
software. If they not understand properly they may do mistakes. Department wise full training is
necessary for all users.

These risk factors are the main causes of ERP failure. If implemented successfully, it align
business objectives with technology solutions. It evolves in the organizational value chain by
enhancing customer satisfaction and stake holder commitment. It achieves better organization
resources.