(Enterprise Resource

Planning)

At the heart of all ERP systems is a database, when a

user enters or updates information in one module, it is
immediately and automatically updated throughout the
entire system

Enterprise Resource planning system is a fully integrated

business management system covering all departments of the
business like Finance, Accounting, Human Resources,
Production and Logistics.
The ERP solutions seek to streamline and integrate operation
processes and information flows in the company to synergies the
resources of an organization namely men, material, money and
machine through information.
ERP is the latest business, Information Technology (IT) tool in
the corporate world today.
ERP is a high-end solution offered by IT to effectively tackle
the problems of a business.

The latest development in the IT industry in this background in

Enterprise Resource Planning (ERP).
Most organizations across the world have realized that in a
rapidly changing environment it is impossible to create and
maintain the custom designed software that would cater to all
their requirements and be up-to-date.
Realizing the requirement of user organizations, some of the
leading software companies have designed ERP software,
which will offer an integrated software solution to all the
functions of an organization.

Applications developed in past to handle these

difficulties.

Management Information System (MIS)

Integrated Information System(IIS)
Executive Information System(EIS)
Corporate Information System(CIS)
Enterprise Wide System(EWS)
Material Requirement Planning(MRP)
Manufacturing Resource Planning (MRP II)

Evolution of ERP
1960s - Systems Just for Inventory Control
1970s - MRP Material Requirement Planning
(Inventory with material planning & procurement)

1980s - MRP II Manufacturing Resources Planning

(Extended MRP to shop floor & distribution Mgnt.)
Mid 1990s - ERP Enterprise Resource Planning
(Covering all the activities of an Enterprise)
2000 onwards ERP II Collaborative Commerce
(Extending ERP to external business entities)

ERP facilitates company wide integrated Information

System covering all functional areas like Manufacturing,
Sales and Distribution, Payables, Receivables, Inventory,
Accounts Human Resources etc.
ERP performs core activities and increases customer service
thereby augmenting the corporate image.
ERP bridges the information gap across organization.
ERP provides complete integration of the system not only
across the departments but also across the companies under
the same management.
ERP is the solution for better project management.

ERP allows automatic introduction of latest

technology like Electronic Fund Transfer (EFT),
Electronic Data Interchange (EDI), Internet,
Intranet, Video Conferencing, E-Commerce etc.

ERP not only addresses the current requirements of

the company but also provides the opportunity of
continually improving and refining business
processes.

ERP provides business intelligence tools like

Decision Support Systems, Executive Information
System, Reporting, Data Mining and Easy Warning
Systems for enabling people to make better
decision and thus improve their business
processes.

Some Tangible Benefits

Reduction of Paper Work.
Provides greater and effective control on ACCOUNTS.
Availability of timely information.
Greater accuracy of information with detailed content, better presentation.
Improved cost control
Faster response and follow ups to customers
Better monitoring and quicker resolution of queries
Enables quick response to change in business operations and market
consumption
Improves supply demand linkage with remote locations and branches in
different countries
Provides a unified customer database usable by all applications
Provides solutions to problems like Y2k and Euro currency.

SAP is founded by five former IBM employees in 1972.

SAP is situated in Walldorf, Germany.
Number one vendor of standard business application software,
with a worldwide market share of 31%.
Fourth-largest independent software supplier in the world.
Available in more than 14 languages.
10 out of 10 largest US companies with the highest market value
use SAP software.
8 out of 10 largest US corporations use SAP software.
More than 7500 customers in over 90 countries have chosen
SAP.

Aerospace & Defense

Automotive
Banking
Chemicals
Consumer Products
Defense & Security
Healthcare
High Tech
Insurance
Life Sciences
Logistics Service Providers
Media
Mill Products
Mining
Oil & Gas
Pharmaceuticals
Postal Services
Professional Services
Public Sector
Retail
Railways
Telecommunications
Utilities
Wholesale Distribution
Engineering, Construction & Operations

Tiered
Suppliers

Multi-Echelon
Supply Chain with
ERP System

Information Flow
Material Flow

Intra-Company Fabrication

ERP System

Web Order Processor

Assembly
Consumers

Retailers
Distributors

Commercial Buyers

Features:
Integrated
information
System
optimization
possible
Problems inflexible - need
a much more
formal
infrastructure to
support the
system.

Cost-Benefit Analysis ( ROI)-

In the absence of an ERP system, a large manufacturer

may find itself with many software applications that do
not talk to each other and do not effectively interface.
Tasks that need to interface with one another may
involve:
design engineering (how to best make the product)
order tracking from acceptance through fulfillment
the revenue cycle from invoice through cash receipt
managing interdependencies of complex Bill of Materials
tracking the 3-way match between Purchase orders
(what was ordered), Inventory receipts (what arrived),
and Costing (what the vendor invoiced) .

the Accounting for all of these tasks, tracking the Revenue,

Cost and Profit on a granular level.Change how a product
is made, in the engineering details, and that is how it
will now be made. Effective dates can be used to
control when the switch over will occur from an old
version to the next one, both the date that some
ingredients go into effect, and date that some are
discontinued. Part of the change can include labeling
to identify version numbers
Some security features are included within an ERP system to
protect against both outsider crime, such as industrial
espionage, and insider crime, such as embezzlement. A data
tampering scenario might involve a disgruntled employee
intentionally modifying prices to below the breakeven point
in order to attempt to take down the company, or other
sabotage. ERP systems typically provide functionality for
implementing internal controls to prevent actions of this
kind. ERP vendors are also moving toward better integration
with other kinds of information security toolsCustomization

Customization of the ERP software is limited.

Re-engineering of business processes to fit the "industry
standard" prescribed by the ERP system may lead to a loss of
competitive advantage.
ERP systems can be very expensive leading to a new
category of "ERP light" solutions
ERPs are often seen as too rigid and too difficult to adapt to
the specific workflow and business process of some
companiesthis is cited as one of the main causes of their
failure.
Many of the integrated links need high accuracy in other
applications to work effectively. A company can achieve
minimum standards, then over time "dirty data" will reduce
the reliability of some applications.
Once a system is established, switching costs are very high
for any one of the partners (reducing flexibility and strategic
control at the corporate level).
The blurring of company boundaries can cause problems in
accountability, lines of responsibility, and employee morale.

Resistance in sharing sensitive internal information

between departments can reduce the effectiveness
of the software.
Some large organizations may have multiple
departments with separate, independent
resources, missions, chains-of-command, etc, and
consolidation into a single enterprise may yield
limited benefits.
The system may be too complex measured against
the actual needs of the customer

Manufacturing
Engineering, Bills of Material, Scheduling, Capacity,
Workflow Management, Quality Control, Cost
Management, Manufacturing Process, Manufacturing
Projects, Manufacturing Flow
Supply Chain Management
Order to cash, Inventory, Order Entry, Purchasing,
Product Configurator, Supply Chain Planning,
Supplier Scheduling, Inspection of goods, Claim
Processing, Commission Calculation
Financials
General Ledger, Cash Management, Accounts
Payable, Accounts Receivable, Fixed Assets

Projects
Costing, Billing, Time and Expense, Activity
Management
Human Resources
Human Resources, Payroll, Training, Time &
Attendance, Rostering, Benefits
Customer Relationship Management
Sales and Marketing, Commissions, Service,
Customer Contact and Call Center support
Data Warehouse
and various Self-Service interfaces for
Customers, Suppliers, and Employees

BEFORE ERP

WITH ERP

Cycle Time Costly

Bottlenecks

Time and cost reduction of

business production

Transaction ProcessingMultiple transactions use

multiple data files.

Faster transactions, using

common data. Reduces the time
and cost of multiple updates

Financial ManagementIncreased Cost of excess

inventory, cost of overdue
accounts receivable

Improves operational
performance (e.g. less excess
inventory, reduction in accounts
receivable)

Business Process
Proliferation of fragmented
process with duplication of
effort

Re-engineering around a
business model that confirms
with best practices

Productivity Lack of
responsiveness to
customers and suppliers

Improvements in financial
management and customer
sevice.

Supply chain management

Lack of integration

Linkage with suppliers with

customers

eBusiness Web-based
interfaces support isolated
system and their
components

Web-based interface with

front-end to integrated
systems

Information Lack of tactical

information for effective
monitoring and control of
organizational resources

Allows cross-functional access

to the same data for planning
and control. Provides widely
available information.

Communication Lack of
effective communication

Facilities organizational
communications with
customers and suppliers.

Technology Rationales

Business Rationales

Ability to use operational data

Inventory cost Reduction

Ability to integrate systems, instead

of maintaining many separate
systems
Ability to enhance systems without
incurring the time and cost of
custom development and
modifications
Ability to implement new features,
such as Customer Relationship
Management (CRM)
Access to on-line, real-time
operational data, Reduction in the
time and cost of
Systems development and
maintenance

IT cost reductions

Personal cost reductions

Increased profitability

Productivity
Improvement

Better cash
management

Step

1. Planning

Activities

Conduct a needs assessment; provide a

business justification, based upon the
difference between the existing system
and the proposed system
(Interviewing; cost justification)

Analyze current business process and

specify the process to be supported;
select the ERP System
(Use best practices models to see what
the company can gain by implementing
the new system)

Re-engineer business processes around

the best practice model of the ERP system
or customized the software
(Use the ERP methodologys best
practices or customize)

2. Requirement
Analysis

3. Design

4. Detailed Design

Choose standard models, processes,

inputs, and outputs (e.g., customer list,
vendor lists) (Interactive prototyping)

Configure the system; migrate data from

the old system to the new system;
develop interfaces; implement reporting
systems; conduct testing; implement
controls, security; train end-users
(Work with vendor to correct any bugs
in the software; clean processes and data
Use reporting tools)
Provide technical support; Provide
upgrades and enhancements
(Add enhanced functionality to existing
modules)

5. Implementation

6. Maintenance
and continuous
improvement

Purpose

Model

Component Model

Organizational
Model

What is done?
(shows the major functions supported by the
system)
Who does what?
(shows the breakdown of the organizational
units)

What information is needed?

(shows the information needed by the company)

What information must be exchanged between

different components?
(shows the major organizational units involved in
information processing (e.g. sales, production) )

Data Model
Interaction Model

Activities

Steps

Create the vision

Develop corporate objectives for ERP

Create a feature/
function list

Use a team who are familiar with

company processes; map current
processes to the new best practices

Create a Software
candidate list

Narrow the field based on the size of

company, industry type, talk to
existing buyers in the industry

Narrow the field to four

to six serious candidates

Conduct preliminary analysis of

strengths and weaknesses; determine
goodness-of-fit

Create a request for

proposal (RPF)

Develop a list of features and

functions

Consider strengths and weaknesses of

each proposal

Review the proposals

 Select Two or
there finalist

Have the finalists demonstrate their

packages

Select the
winner

Consider numerous factors(e.g., supplier

support, technological risk etc.)

Justify the
investment

Conduct a cost-benefit analysis; tangible

benefits include material control, reduced
cost, increased productivity, increased
on-time deliveries, improved customer
service, inventory reduction, and
elimination of redundant databases;
intangible benefits include reduced cost,
higher morale, and improved
communications; make a GO, NO GO
decision

Negotiate the
contract

Participate in contract
review

Have a cross-functional
team review the pilot

Involve the crossfunctional team in a final

GO, NO GO decision

Run a preimplementation pilot

Validate the
justification

The Current Scenario

Difficult to get timely & accurate information

Heterogeneous Hardware & Software
platforms & practices
Poor connectivity between different
organizational locations
Sticking with obsolete technology
Resist to change
Lack of proven man-power to develop
integrated software

ERP Expectations
Integrating all the functions
Integrating the systems running in all the locations
Transparency of information using a single
data source across the organization
Software must be responsive
Modular
Flexible
Easy to add functionalities
Provide growth path

OPTION 1 MAKE [Using Internal resources]

Developing a custom-built ERP package, specific to the
requirements of the organization, with the help of the
in-house IT department

OPTION 2 - BUY
Going for Tailor-made ERP packages available in the market like
SAP, Oracle applications, Baan, PeopleSoft etc.

OPTION 3 MAKE [using External resources]

Developing a custom-built ERP package, specific to the
requirements of the organization, with the help of a
software solution provider

1-ERP -Building using Internal

resources

Lack of adequate & qualified manpower

Not driven with clear focus on expectations,
time & cost
Poor software project management
Lack of seriousness with the Management & the
IT Team
High employee turnover
Lot of schedule gaps during Project execution
Normally project life is more
Frequent change in the scope with the approval
of the Management

2-BUY Tailor made ERP solutions

Execution Phases
ERP product selection phase
Product selection - Parameters
Preparation Phase
ERP product acceptance - Options
GAP Analysis
Production Phase
Implementation Phase
Post-Implementation Phase
Pitfalls & Points of Concern
Critical Success factors

About
Generalized off the shelf application s/w packages
Modules based on rich functionalities for all
business functions
User tested with lot of installations
No lead time requirement for software
development
Tuned for more users/networks with adequate &
inbuilt security
Parameterized for flexibility
Can sit on latest hardware & software platforms
Up gradation of functionalities with version control

ERP Product selection Phase

ERP Team formation for selection

Appointment of Consultants [if needed]
Scoping study
Product selection
Implementation partners selection
Hardware/Communication cost estimation

Product Selection Parameters

Reputation of the ERP product

No. of installations in the geographical vicinity
% of the overall functional availability
Customization possibilities
After sales support
Your investment plan & budget
Implementation partners track record

ERP Product selection Criteria

Goal:
To select the
Most Suitable Software
Package Solution

Functionality

5 Strategic
Requirement
Levels

Technology

Vendor

Support

Costs

1.

Technological Factors
Cost of Technology

2.

Installation

3.

User Interfaces

4.

Upgradability

Questions
What are the startup and
recurring costs?
What consulting
assistance is offered
(time, cost)?
What interfaces are
supported?
What is the frequency of
upgrades?

4. Computing
environment

What is the computing

environment?

5. Personnel requirements

What expertise is needed

for design and
implementation (business
analysts, consultants)?

Preparation
Phase

Framing ERP Implementation Strategies

Formation of Apex & Steering committees
Functional & IT team formation
Training on ERP functions & features
Scope finalization
Action plan to resolve the gaps

ERP product acceptance

options

1. Adapting directly, all the functions available in

the ERP Product [Applicable for startup companies]
2. Change the way the firm does the business to fit
the product [Compromising]
3. Customize the ERP product to suit the business
Processes. [Customization]

Production Phase
Installing the software & hardware
Tuning the software to meet the
customization needs
Master & Control data arrival as per
the Product data structures
Location & people specific roles & rights
allocation for module access & security

Implementation Phase
Conference Room Pilot [Parallel run]
Resolving the Parallel run issues
Training the end users
Live run

Post-Implementation Phase
Regular monitoring
Tuning [hardware/software] for patching
the performance issues

Maintenance

Critical Success Factors

The firm & optimistic approach of the Management

- on adapting the ERP product driven methodologie
- on customization
- on monetary commitments
The dedicated Team
Good Training
Strict adherence to the Project schedules
Right technical infra-structure
Change Management

3-Custom-built ERP
Solutions using External
The Resources
best as seen elsewhere, need not be the best fo

What is your best is what can be successfully implem

Here the whole package is designed & built
by keeping a specific enterprise & its business
Practices in mind
by incorporating the improvements/additions
with due integration
without compromising or changing the current way
of doing the business and
providing flexibility to accommodate your business
fluctuations

The Steps

Software vendor selection

Detailed study by the vendor
Scope & platform finalization Development
Hardware addition/up gradation
Old master/transaction data migration
Parallel run with Integration & connectivity check
Implementation
Maintenance

Advantages-

Very economical while comparing the cost of implementing

tailor-made ERP solutions
Less prone for hidden-cost hits
The company can opt for its choice of Hardware, Software &
communication platforms based on the skill availability
The company and the software vendor have the direct
relationship during the project execution. The proximity
would be high & convenient.
IT department has good control over the Project
What is required only would be considered under the scope
No redundancy
The existing practices & applications can be tuned and
linked with the proposed package
Maintenance & improvements are easy & less costlier.
Even IT team can maintain the setup after getting the
source code

Software Vendor Selection

The following traits should be considered while
selecting the software vendor for building the
ERP application
Technical expertise
Domain knowledge
Adequate manpower
Project management skills
Long existence in the field
Extra skills [e-biz & workflow]

Definition given by Hammer and Champhy-

The fundamental rethinking and radical

redesign of business process to achieve
dramatic improvements in critical,
contemporary measures of performance,
such as cost, quality, service and speed

The value chain consist of primary and secondary

activities of the firm. Re- engineering strives for
efficient re-design of the companys value chain.

Work Units modify

Jobs modify
Peoples role modify.
Job preparation modify.
Focus of performance measures.
Improvement criteria modify .
Value Changes.
Manager change.
Organization structures alter.
Executives modify .

Primary activities-

Primary activities of the firm

include inbound logistics, operations, outbound
logistics, marketing, and service. These activities are
essential to creating, producing, marketing, selling,
and supporting a product or service. An information
system support each of these primary activities. This
information system can cut the cost of performing the
value activity, or it can be used to provide a Valueadded feature to the product or service.

Secondary Activities- Secondary Activities

support the primary activities of the organization.
These secondary activities include organizational
structure, human resources,
technology and
purchasing. Information system can support these
secondary as well.

Functions

Information systems
supporting primary
activities

Material handling:
delivery

Manufacturing:
assembly

Automated warehousing systems

Manufacturing control systems

Order processing:
Shipping

On-line order entry systems

Advertising: promotion

Marketing analysis systems

Service: repair

Remote machine diagnostics

parts

Organization

Electronic mail
(facilitates
communication through
organization )

Human Resources

Skill databases

Technology

Computer-aided design
and manufacturing

Purchasing

On-line links to
suppliers databases

In order to depict the changes in data and process

associated with business re-engineering, a commonly
used tool in system analysis is the process model.
The process model consists of five objects:1. The business process: The process depicts the
business activities that which are accomplished.
2. The data store: The store depicts data that are
needed by business processes.
3. The data flow: The flow depicts data being
transferred from a process to another process or
between a process and a data store.
4. The organizational unit: The organizational unit
depicts the unit of organization in which these
process takes place(e.g., Accounts receivable, sales).
5. The event, including triggers and outcomes: A
triggers is an event which triggers a process, and
an outcome is an event which results form a process.

Emergence of CLIENT-SERVER Computing (the

application is divided between a client and a
server)
characteristics of client-server computing
- Increased power
- Increased control
- Increased efficiency
- Improved user interface
- Improved database control

Integrated Databases

The process changes associated with

making re-engineering work are critical to
the success of ERP. ERP implementation
suffers because regional managers reject
the software or sought to tailor it to the
need of their own units.

Factors
Data Management

Distribution of
procedures

Transactions

Things to consider
Who is responsible for data integrity?
(centralized responsibility vs local
responsibility)
Will the ERP support the centralized
data management a master
repository ?
Which business process should be
centralized?
Which process should remain under
local control?
Does the ERP provide and audit trail of
transaction at the traceable level?
Does the ERP provide and audit trail of
transaction at the aggregate level?

ERP software packages are so large and

complex, one person cant fully understand
a single ERP system; it is also impossible for
an individual to compare various systems.

So, before choosing a software vendor, most

companies study their needs and then hire a
external team of consultants to help choose
a right software vendor(s) and the best
approach to implementing ERP. Working as a
team, the consultants apply their expertise
to selecting an ERP vendor (or vendors) that
meets their customers needs..

After selecting a vendor, the consultants

recommend the modules that are best suited
to the companys operations and the
configurations within those modules that are
most appropriate. This preplanning should
involve not only the consultants and a
companys IT department, but management
as well.

Complete Project Management

Business Process Re-engineering
Extensive training for ERP users (core team, end
users)
ERP system maintenance support.
System up-gradation to new versions, additional
business functionality as supported by new versions.
Appraisal for existing systems and/or manual
processes.
Integration of existing and new systems.
Resource requirements Planning and timings.
Analysis
-Cost-benefit analysis.
-Impact analysis.

ERP consultants and solutions are set up to

consultant and advice manufacturing and
commercial companies.
ERP consultants touch all area of the ERP
consulting process and select the most
adapt ERP solutions.
ERP consultants assist staff thorough the
whole ERP consulting process and suggest
the set of alternate ERP solutions, or
specialized ERP systems.
ERP consultants take care of ERP
implementation process, ..(..etc..)

EXAMPLE - CASE ALTANTIC

MANUFACTURING

Atlantic manufacturing is a manufacturer of a custom

configured small motors that go into a jet skies,
snowmobiles, and other recreational vehicles. It
reported these problem in order acquisitions,
distributions, and accounting.
SALES AND DISTRIBUTION
Salespersons have to call the home office for quotations
for many products because of many possible
configurations.
Salespeople are making quotas, but profitability is
declining because the standard cost system is not
providing accurate information with respect to costs.

CREDIT

Recently customers were put on credit hold when they

were not able to pay on a timely basis. However, when a
credit manager was out of town for several weeks, an order
went through to this customer by mistake. Nothing could be
collected on this account because customer cannot pay.

CUSTOMER SERVICE AND REPAIR

Atlantic has a stand-alone system to take care of field
service. When service technicians repair equipment in the
field, they do not always bill the customer for correct
amount since the system does not have information
indicating which replacement parts are covered by the
warranty.
Since the field service system is stand-alone system and
does not integrate within the company, quality control
people mainly use anecdotal evidence to identify potential
problems.

IN CONTRAST- ATLANTIC COMPETITERS

ATLANTIC competitors are offering their

customers lower quotes and reduced lead times.
Salespersons are creating quotes using laptops
from their customers offices. Credit checking is
automatic on all new orders, and salesperson
have immediate access to customer credit
information. Field service technicians have
access to data indicating which parts are
covered by supplier warranty.

 Sales

order

entry

Inventory

Shipping

delivery

and

Incorrect

pricing; incorrect
credit information; calls to
customer to customers to
get correct information.
Incorrect inventory;
delays in inventory
updates; inadequate
inventory to fill orders.
Delays in shipping and
delivery

 Invoicing
Payment

Processing

Accounts

Receivable

Inaccurate

or incomplete

invoices.
Customers may not
include a copy of their
invoices with their
payment; incorrect
posting of payments.
Delays in account
receivable posting;
reminder letter are
generated to customers
who have paid.

1.

Operational

2.

Management
control

Prospecting;
contact
management;
telemarketing;
direct mail
Sales
management;
product pricing;
advertising and
promotion; sales
forecasting.

Sales forecasting

Predicts trends
Determine customers needs in different
market segments
Based on sales history, customer demands,
demographic trend, competitor information

Advertising

Identifies channels that will be most effective

Product pricing

Decision supported by pricing models

Examines CPI, expected consumer disposable
income, production volumes, labor costs,
costs of raw materials

ERP systems differ from traditional systems

Allow for integrated marketing support systems

Provide integrated CRM software

Purpose

Identify sales prospects

Process orders
Manage inventory
Arrange deliveries
Handle billing
Process payments

Benefits

Standard codes and documents

Common database
Provides audit trail
Allows for data Integration

Front-end interface with customer to sales and

marketing
Comprehensive approach
Developed from sales force automation software
Provides sales force with management tools
Sales activity
Sales and territory management
Contact databases
Leads generation and monitoring
Product-specific configuration support
Knowledge and information resource management

Needs an underlying Sales and Marketing ERP

module for operational-level data
CRM data accessible through data warehouse

Sales model may be integrated with:

CRM
Financial Accounting
Materials Management

Human Resources
Quality Management
Controlling

The sales and marketing modules for ERP

systems are designed to support the
sales order processing systems, control
daily activities like prospecting, and
manage contacts.
This system produces sales forecasting,
identifies advertising channels, and helps
to maintain competitive pricing scales.
The CRM module serves as a front-end
interface between the customer and the
sales and marketing departments.

Inaccurate and/or incomplete paperwork

produces problems
Exchange of information between
departments made manually
Unable to supply quantity discount
information to sales force
Lack of coordination between departments

Operational
management
level
Production of
transactions
Paychecks,
invoices,
checks,
purchase
orders

Budgeting

Cash management

Cash flow analysis

What-if analysis

Capital budgeting

Analysis of allocations, expenditures,

revenues

Evaluation tools: NPV, IRR, pay-back period

Investment management

Traditional
Provide operational-level software
Produce invoices, checks, statements

Financial accounting
Financial statements for external reporting
purposes

Management accounting
Information on profitability

ERP

Information shares integrated database

Provides up-to-date information
Seamless
Creates document flow of transactions

Accounting systems
Manual or separate transfer of information
Multiple platforms

External reporting

Set by general accounting standards

Legal requirements

Includes accounts receivable subsystem

Interfaces with cash management

Monitors accounts and updates, handles
payments, creates due date lists, produces
statements

Accounts payable

Handles payments, applies available

discounts to maximize profits

Internal accounting perspectives for directing and

controlling operations
Information on variances between planned and actual
data
Key activities

Cost center accounting

Internal orders as a basis for collecting and controlling costs
Activity-based costing of business processes
Product cost controlling for profitability analysis
Profitability analysis by market segment
Profit center accounting of individual areas of organization
Consolidation of financial data for accounting perspectives

Enable management to better allocate resources,

maximizing profitability and performance
Central clearinghouse for accounting information

Provide on-line, real-time data

Operational data

Feedback on quality and efficiency of processes

Information must be timely and specific
Used for real-time operational control

ABC data

Information on profitability and products

Real-time data
Estimates are sufficient
Strategic information
Basis for continuing improvement to operations

Most accounting processes operate at

the operational management level
Additional software enables financial and
management accounting
Each department or division may operate
different software and databases

ERP systems integrated database allow

for seamless information sharing
Easier reporting
Includes all operational data and ABC data
Coordinates with management accounting
modules

Examine the production management

system in ERP
Understand the materials management
system
Acknowledge the interrelationships among
business processes supporting production
and materials management

Materials and manufacturing are dealing

with inconsistent levels of raw materials
and finished products
Change specifications are not made
timely
Sequential design produces long lead
times
Inadequate information from other
divisions
Lost purchasing requisitions

Designed to re-order inventory using re-order

point
Adapts production to customer orders
Increased flexibility, responsiveness, integration

60s, 70s, 80s: High-volume production of few

products
Mainframe-based databases

Late 80s: Production of new products to meet

customers needs

Changeable and flexible

Manufacturing Execution Systems provided continuous
feedback and control

90s: Integration of processes and data produce

operational efficiency
ERP systems gave total integration, including supply
chain

Lack of integration between divisions in

organization
Production must be linked to sales to
maintain proper inventory levels

Inaccurate production forecast will create

incorrect purchasing decisions
Producing either a shortage of or extra raw
materials
Creating an excess of finished products or
shortage

Excess inventories

Impact cash flow and profitability in

accounting

Objectives

Create production plan

Acquire raw materials
Schedule equipment, facilities, human resources
Design products
Produce appropriate quantities and expected
quality level

Operational-level processes

Daily activities

Purchasing

Receiving

Inspection of delivered products and processing

Quality control

Acquire correct quantity of raw materials and supplies

Monitoring of receivables and identification of

unacceptable deliveries
Monitoring quality of production goods

Inventory management

Maintains appropriate levels

Production planning and manufacturing

processes
Supported by information systems

Data collection systems

Material management systems
BOM systems
Inventory management systems
Cost accounting systems

Processes:

Identify stock needed

Calculate lead time for stock
Determine safety stock levels
Assign most cost-effective order quantities
Produce accurate purchase orders

MRP takes inputs from the MPS

MPS employs sales forecasts to identify
products needed

Ideal production and manufacturing

situation

Only maintain necessary inventory levels; no

excess
Requires supplies to be delivered only as
needed to meet production schedule

EDI or Internet used to place orders

Continuous replenishments of raw materials

Reduces storage cost and space both preand post- production

Improved supply chain and value chain
management

Evaluation of production capacity against

production goals

Requires specific information

Creates time-phased plans for product and
production area

Production scheduling
Allocation of specific facilities

Estimates human resource needed

Product design and development is

integrated with cost information

Allows comparison of alternatives to decrease

expenses

ERP extends information distribution

Supports materials requirement planning, inventory

management, capacity planning

Allows for merging of multiple databases

Eliminates paperwork and bottlenecks

Decreases design costs, lead time, personnel costs
Increases productivity

Sales forecasts employed to develop production plans

MPS created through demand management
Determines quantities and dates for finished products

MRP creates efficient, detailed material plan

Determines what needs to be ordered and when

Creates work orders sent to production

ERP systems provides integration

Subsystems

Sales forecasting

Sales and operation

planning

How an ERP works

Production has access to
sales forecast, so it can
adjust production levels
to actual sales if sales
differ from expectations
Determine if production
facilities can produce
enough to meet
customer demand

Demand
management

MRP

Break down the production

plan into weekly production;
produce the MPS, which is
the production plan for
finished goods
Determines the amount and
timing of raw materials
orders and subassemblies to
support the MPS

Purchasing

Detailed scheduling

Production

Accounting

Generate purchase orders

for raw materials
Schedules production based
on demand
Uses the detail schedule to
manage operations
ERP captures data on the
shop floor for accounting
purposes

The procurement process determines

needs, identifies potential source of
supply, compare alternative quotations,
create a purchase order, track the status
of the purchase order, receives good and
verifies invoices upon receipt of goods.
An ERP system provides needed
integration between the Material
Management subsystem and other
subsystems.

Activity
Determine
Requirements
Source

determination

Vendor

selection

Description
Determines needs,
based upon re-order
point, regular checking
of stock, and
forecasting based upon
usage
Identifies potential
sources of supply
Compares alternative
quotations

Purchase order
processing

Purchase order
follows-up
Goods receiving and
inventory
management
Invoices verification

Uses information from a

purchase requisition to
create a purchase order
Provides status of
purchase orders
Confirm the receipt of
goods

Matches invoices with

information on goods
which have been received

Interface with
Management
Accounting

Financial Accounting

Sales and distribution

Production Planning

Interface Type
Purchase order are assigned
to a cost center
Purchasing maintains vendor
data which are defined
jointly with Financial
Accounting
When a Purchase requisition
is created, it is assigned to a
sales order
Inventory management
posts component for
production orders

MES (Manufacturing Execution System)

Factory floor information and communication systems

Provide feedback on real-time basis
Can be front-end combined with back-end applications

APS (Advance Planning and Scheduling)

systems

Business analysis and support

Leverage data for decision support

Data collection

Real-time data gathered with mobile phone or

Internet-enabled devices
Automated data collection

Facilitates communication along supply

chain
B2B

Many suppliers available

Internet enables quick and easy exchange of
information

Planning forecasts

Reduces costs
Communities

eMarketplaces allow for aggregation of

buyers to improve purchasing power
Eliminate traditional supply chains and
problems
RFPs handled more efficiently

Traditional production systems offered no

integration within the organization
Most production planning lacks coordination
with the organizations manufacturing ,
particularly at the operational level
Organizations want material resource
planning, JIT systems, and capacity planning
ERP systems offer both production planning
and materials management

Facilitating communications along the supply chain

Improving e-Business opportunities

Recruitment, training, and retention of

sales force is difficult
HR records inadequate
HR paperwork and compliance
requirements increase steadily
Management of compensation packages
difficult
Needs to create a strategy for controlling
the cost of various employee benefits

Subsystem
Employee Information

Application selection
and selection

Government
Reporting

Job analysis and

design

Problems
Need to query employee
information to identify
candidates with required
skill sets
Need to develop selection
criteria to provide a mores
stable workforce
Need to maintain and
update data for government
reporting requirements
Need to design positions,
which will minimize turnover
by providing breadth and
depth of responsibilities

Compensation

Benefit
administration

Need to develop
competitive salary and
benefits package for
key positions
Need to analyze
alternative benefits
scenarios to minimize
costs and maximize
employee loyalty and
satisfaction.

Traditionally relied upon stand-alone

systems

Specialized applications for applicant tracking,

compensation, benefits, attendance

Redundant data

No link to financial systems

ERP

Linked to financial systems

Best practices

Components

HR Management

Benefits administration

Links employee data to actual benefits

Allows selection from group of benefits

Payroll

Personnel records
Resumes

Paychecks, tax reports, accounting data

Time and labor management

Employee/Manager self service

Travel reimbursement
Personnel data and benefits changes
Training class

How ERP Works

Subsystem

Employee
Information
Skill Inventory

Position control

Application
selection/placement

Maintains personal information,

including job history, salary,
and retirement and benefit
choices
Maintains information on
special skills, work experience
Defines each position within
the organization; provides
common jobs categories,
descriptions and specializations
Maintains information for
recruiting, screening,
evaluating and selecting
candidates for employment

Compensation

Performance
management

Training and
development system.

Government reporting

Payroll

Maintains compensation data;

maintains employee, compensation
changes (e.g. salary increases,
salary history, job evaluation
results, appraisal results)
Maintains performance appraisal
data and productivity data
Tracks information about courses,
instructors, students and
registrations; identifies training
deficits and enables employees to
book appropriate training
Provides reports in response to
government statutes, including the
Age Discrimination Act, the Equal
pay Act, Occupational Safety and
Health Act, the Family Leave and
Medical Act
Generates payroll and various
statements

Attributes

Integration
Common database

Provide audit trails

Scalable and flexible

Drill-down capability
Workflow management for electronic routing
of documents and other document
management
Process standardization
Security
User friendly and web-accessible

HR information enables management of diverse

workforce
Supports managerial decision making through query and
reporting tools
Operational level controls
Maintain and update employee files
Job analysis files
Design files
Regulatory files
Skills inventory files

Strategic level controls

Human capital inventory for tracking employees

Position control linked to budgeting
Labor/management relationships
Business intelligence tools for predicting trends

Module integration is significant benefit

ERP systems include HR modules that offer

records management, benefits
administration, and payroll
Offer integrated operational and strategic level
controls
Scalable and very flexible

Acknowledge the importance of project

management and control
Examine the process of organizational
change

Number of modifications
Effective communications
Authority for project implementation
Business management
Ability to generate additional funds to cover
implementation

Poor technical methods

Communication failures
Poor leadership
Initial evaluation of project

Organizational factors

Changes in scope
Sufficiency of resources
Magnitude of potential loss
Departmental conflicts
User experience

Management support

Changing requirements and scope

Lack of commitment

Software design

Developing wrong functions, wrong user interface

Problems with outsourced components

User involvement

Lack of commitment
Ineffective communication
Conflicts
Inadequate familiarity with technologies

Project management

Size and structure

Control functions

Project escalation

Societal norms
Continue pouring resources into sinking ships

Technology

Organizational

Customization increases risks

Redesign of business processes to fit package
decreases risk

Human resource factors

Consistencies with current infrastructure

IT staff skills and expertise

Project size

MRP or ERP

Package implementation differs from custom

implementation

Management commitment

Vendor participation
User skills and capabilities
Project champion
Communication with stakeholders

Training in MRP
Good project management

Implementation factors
Re-engineering business processes
Changing corporate culture
Project team
Include business analysts on project team

Management support
Commitment to change

Risk management

Customization

Increases time and cost

BPR advantage from best practices adoptions lost

Use of external consultants

Offer expertise in cross-functional business processes

Problems arise when internal IT department not
involved

Supplier relationship management

Need effective relationships to facilitate and monitor

contracts

Change management

People are resistant to change

Organizational culture fostering open communications

Business measures

Create specific metrics at start of project

Project division into subprojects

Project leader with proven track record
Project focus on user needs instead of
technology
Project champion
Slack time in project schedule

User training

Focus on business, not just technical

Critical

Management reporting requirements

May need to add query and reporting tools

Technological challenges

Data conversion
Interface development

A number of factors will effect the

success or failure of a systems project
Operational methods and techniques
Business management and style
Leadership and communications

Risk factors effecting projects must be

considered

Organizational factors, management support,

software design, the levels of user
involvement, and the scope and size of the
project itself
Implementation risks for technologies, the
organization, and human resource

Success in ERP projects includes factoring in

Consideration of customizations, use of external
consultants, management of supplier
relationships, establishing metrics, and change
management
Project-related concerns
Technological changes, user training, and
management requirements

Examine the supply chain participants

Acknowledge the interrelationships among
business processes that support the supply
chain
Understand the role of ERP in supporting
eBusiness
Recognize how business intelligence tools
are used in decision analysis

Integrated planning of the activities in a

supply chain
Planning and control of flow of goods,
services, money, and information
Allows customers and suppliers to partner
together

Maximize responsiveness and flexibility

Reducing costs and paperwork
Gain sustainable competitive advantage

Can be maintained by manufacturer

Continuous replenishment
Can link into POS systems

Cross-docking
Creates linkages between supplier and
retailer
Lower costs
Better customer service
Increased profitability

Information sharing along supply chain

Translates sales transactions into production

processes and material requirements

Benefits

Cost reduction
Inventory reduction
Cycle time improvement
Improved customer service

Integration requires commitment to

strategy, process, organization, and
technology
What linkages should be established
Communications
Data integration

Old Demand Chain

Buy Raw
Material

Make Finished
Products

Move goods to
Market

Sell through
retailers

New Demand Chain

Sell Customized
Product

Move to delivery
Based on
Consumption

Make only
thoes
Products for
Which there is
demand

Buy raw material

In line with
Accurate
Production
requirement

VMI (Vendor Managed Inventory)

Responsibility of inventory management on

supplier
Supplier monitors level and replenishes
inventories
No risk of stockout
Quicker response time
Retailer reduces inventory and administration
costs
Supplier gets more business
No expedited orders
Returned goods to supplier drops

Electronic linkages facilitate JIT systems

Reduced costs, improved response time,
increased responsiveness to customer

Evolution of virtual value chain

Provides information-based channels
Changed from transaction-based to contractbased relationships
Moved from vertically integrated to selective
sourcing
Core firm outsources all parts of its business

eProcurement

RFBs on web
Bidding more competitive

Free-market bidding levels playing field

Increased choices
Reduced transaction costs

B2B hubs
Spot sourcing of operating inputs
Systematic sourcing of inputs
Bring suppliers of similar or complementary
products together at one web site
One-stop shopping

Automate transactions and reduce costs

Facilitates real-time updates across chain

From consumers to suppliers

Greater ability to fill orders
Better understanding of customer needs

Data warehouse

Repository for making management decisions

Data integrity accomplished by cleaning
Consistent formatting applied

Data mart

Data storage for specific set of users

Special data analysis

Data mining

Analysis of data for trends, sales forecasting,

inventory management

Identifies problem, develops research, collects and

analyzes data

Supply chain management offers an

integrated planning and control of goods,
services, money, and information
between suppliers and customers

Produces lower costs and reduced inventories

Improves customer service
Increases profitability

Virtual value chains provide informationbased channels

Contract-based
Applies selective sourcing instead of vertical
integration

eProcurement employs web-based RFBs

More competitive and more choices of suppliers

eSupply chains facilitate real-time

updates, responding to customer needs
Business intelligence is increased by
mining data warehouses and data marts