Introduction to ERP

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 Introduction to ERP
Concept

ERP is short of Enterprise Resource Planning,

which is business management system that
integrates all facets of the business such as
manufacturing operations, supply chain,
customers, human resource & finance.

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Introduction to ERP Concept
Introduction to ERP Concept
ERP’s Full potential

Manufacturing Customers
units

Corporate
Office

Vendors
Regional
Office

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 Introduction to ERP Concept

The salient features of above definition is that ERP

refers to in house developed or commercially
available software solutions which provide an
integrated suit of IT applications. That support the
activities of the organization as a whole.
ERP Systems are the information backbone of the
company. It serves as central nervous system &
termed as digital nervous system of the company.

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 Introduction to ERP Concept

ERP (enterprise resource planning) is an industry term for the broad set
of activities supported by multi-module application software that helps a
manufacturer or other business manage the important parts of its
business, including product planning, parts purchasing, maintaining
inventories, interacting with suppliers, providing customer service, and
tracking orders. ERP can also include application modules for the
finance and human resources aspects of a business.

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 Introduction to ERP Concept

ERP in manufacturing sector was primarily to know :

1) Stock of finished goods
2) Understand material movement

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 Introduction to ERP Concept Key
Terms
Integration:
Integration of operations with accounting result in converting the
physical units into dollar value. ERP integrates all facets of
business including

1) Planning
2) Manufacturing
3) Sales

Software applications have emerged to help business managers

implement ERP in business activities such as Inventory Control,
Order tracking, Customer service

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 Introduction to ERP Concept
Key Terms
ERP modules are generally expected to have the capability to
interface
with organizations own software.

A good business strategy drives everything that comes in its way

including its IT & IS resource

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ERP Across Business System
Financial Systems Operational logistics

Accounts receivables & payable Inventory Management

Cash planning & Management MRP
Cost accountancy Plant management
General ledger Production Planning
Product Cost accounting Project management
Profit center analysis Purchasing
Profitability analysis Quality management
Executive Information system Routing
Asset accounting Dispatching
Standard costing vendor analysis
Human Resources Sales & Marketing
Payroll, Manpower planning Sales Order, Pricing
Travel Expenses, Sales management
HR accounting Sales planning

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 Process view/ Model of Business
• Process Model defines entity or a set of activities that together respond to a
set of inputs to produce desired output
• The process of converting input to desired output is governed by factors
such as performance
standards,knowledge,procedures,material,machine,,constraints,& control
points

Material Machines

Input Processing Output

Knowledge & Training Methods & procedures

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 Preparing for the ERP
Inter Company Integration

To begin with ,an enterprise has framed departments, with some

minimum interface with one another. organizations then adopt
systems approach where the output of one system became input
for other system and so on to form integrated system.

The isolated systems of yester years were called management

systems(MIS) later DSS or decision support systems were
developed. Executive Support system is a step beyond both MIS &
DSS that collates information from different sources

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 Preparing for the ERP
Before implementing ERP ,an organization has to decide where it is
right now, where it would like to be,& what methods could be used to
get there.

The data captured is of immense value in ERP in Finance, HR, SCM

and enables such as data warehousing, EIS, workflow etc.

ERP is not just an IT project. It changes the organization in terms of

authority responsibility relationship It brings discipline to the
organization.

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 Preparing for the ERP

Business process reengineering focuses on transformation of

business process to make them more efficient whereas ERP focuses
on automating

The business process using & some objective in mind.

A project team is drawn from IT, Sales, Purchase, Production &
Finance.

The outside consultant can be hired.

ERP being an enabling tool help us to do things better

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ERP STRENGTHS & WEAKNESSES

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 HIDDEN COSTS OF ERP
There are some costs which are underestimated or overlooked
When ERP is implemented.

The following areas merit our attention.

1. Training—Training is the near-unanimous choice of experienced

ERP implementers as the most underestimated budget item. Training
expenses are high because workers almost invariably have to learn a
new set of processes, not just a new software interface. Worse,
outside training companies may not be able to help you. They are
focused on telling people how to use software, not on educating
people about the particular ways you do business.

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HIDDEN COSTS OF ERP
Prepare to develop a curriculum yourself that identifies and explains the
different business processes that will be affected by the ERP system. One
enterprising CIO hired staff from a local business school to help him
develop and teach the ERP business-training course to employees.

Remember that with ERP, finance people will be using the same software
as warehouse people and they will both be entering information that
affects the other. To do this accurately, they have to have a much broader
understanding of how others in the company do their jobs than they did
before ERP came along. Ultimately, it will be up to your IT and
businesspeople to provide that training.

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HIDDEN COSTS OF ERP
Integration and testing

Testing the links between ERP packages and other corporate

software links that have to be built on a case-by-case basis is
another often-underestimated cost. A typical manufacturing
company may have add-on applications from the major—e-
commerce and supply chain—to the minor—sales tax computation
and bar coding.

All require integration links to ERP. You’re better off if you can buy
add-on s from the ERP vendors that are pre-integrated. If you
need to build the links yourself, expect things to get ugly. As with
training, testing ERP integration has to be done from a process-
oriented perspective. 19
 HIDDEN COSTS OF ERP
Customization

Add-ons are only the beginning of the integration costs of ERP.

Much more costly, and something to be avoided if at all possible, is
actual customization of the core ERP software itself. This happens
when the ERP software can’t handle one of your business
processes and you decide to mess with the software to make it do
what you want. You’re playing with fire.

The customizations can affect every module of the ERP system

because they are all so tightly linked together. Upgrading the ERP
package—no walk in the park under the best of circumstances—
becomes a nightmare because you’ll have to do the customization
all over again in the new version. 20
Chapter2
 HIDDEN COSTS OF ERP
Data conversion

It costs money to move corporate information, such as customer and

supplier records, product design data and the like, from old systems to new
ERP homes. Although few CIOs will admit it, most data in most legacy
systems is of little use. Companies often deny their data is dirty until they
actually have to move it to the new client/server setups that popular ERP
packages require. Consequently, those companies are more likely to
underestimate the cost of the move. But even clean data may demand
some overhaul to match process modifications necessitated—or inspired—
by the ERP implementation.

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BENEFITS OF ERP
1. Reduction in inventory
2. Redeployment of personnel
3. Productivity improvement
4. Order management cycle improvement
5. Financial close/cycle reduction
6. IT cost reduction
7. Procurement cost reduction
8. Cash management Improvement
9. Transportation cost reduction
10. Hardware maintenance reduction
11. Software maintenance reduction
12. On line delivery improvement
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FIVE MAJOR REASONS FOR
UNDERSTANDING ERP
1) Integrate financial information

As the CEO tries to understand the company’s overall performance, he

may find many different versions of the truth. Finance has its own set of
revenue numbers, sales has another version, and the different
business units may each have their own version of how much they
contributed to revenue. ERP creates a single version of the truth that
cannot be questioned because everyone is using the same system.

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FIVE MAJOR REASONS FOR
UNDERSTANDING ERP

2) Integrate customer order information

ERP systems can become the place where the customer order lives
from the time a customer service representative receives it until the
loading dock ships the merchandise and finance sends an invoice. By
having this information in one software system, rather than scattered
among many different systems that can’t communicate with one
another, companies can keep track of orders more easily, and
coordinate manufacturing, inventory and shipping among many
different locations simultaneously.

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FIVE MAJOR REASONS FOR
UNDERSTANDING ERP

3) Standardize and speed up manufacturing processes

Manufacturing companies—especially those with an appetite for

mergers and acquisitions—often find that multiple business units
across the company make the same widget using different methods
and computer systems. ERP systems come with standard methods for
automating some of the steps of a manufacturing process.
Standardizing those processes and using a single, integrated computer
system can save time, increase productivity and reduce headcount.

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FIVE MAJOR REASONS FOR
UNDERSTANDING ERP
4) Reduce inventory

ERP helps the manufacturing process flow more smoothly, and it

improves visibility of the order fulfillment process inside the company.
That can lead to reduced inventories of the materials used to make
products (work-in-progress inventory), and it can help users better plan
deliveries to customers, reducing the finished good inventory at the
warehouses and shipping docks. To really improve the flow of your
supply chain, you need supply chain software, but ERP helps too.

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DISADVANTAGES
Success depends on the skill and experience of the workforce,
including training about how to make the system work correctly.
Many companies cut costs by cutting training budgets. Privately
owned small enterprises are often undercapitalized, meaning
their ERP system is often operated by personnel with inadequate
education in ERP in general, such as APICS foundations, and in
the particular ERP vendor package being used.

Personnel turnover; companies can employ new managers

lacking education in the company's ERP system, proposing
changes in business practices that are out of synchronization
with the best utilization of the company's selected ERP.
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DISADVANTAGES
Customization of the ERP software is limited. Some customization
may involve changing of the ERP software structure which is usually
not allowed.

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 to install. ERP vendors can

charge sums of money for annual license renewal that is unrelated to
the size of the company using the ERP or its profitability.
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DISADVANTAGES

Technical support personnel often give replies to callers that are

inappropriate for the caller's corporate structure. Computer security
concerns arise, for example when telling a non-programmer how to
change a database on the fly, at a company that requires an audit trail
of changes so as to meet some regulatory standards.

ERPs are often seen as too rigid and too difficult to adapt to the
specific workflow and business process of some companies—this is
cited as one of the main causes of their failure
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DISADVANTAGES
Systems can be difficult to use. The system can suffer from the
"weakest link" problem—an inefficiency in one department or at one
of the partners may affect other participants.

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.
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WHY DO ERP PROJECTS FAIL SO OFTEN?
At its simplest level, ERP is a set of best practices for performing
the various duties in the departments of your company, including in
finance, manufacturing and the warehouse. To get the most from the
software, you have to get people inside your company to adopt the
work methods outlined in the software.

If the people in the different departments that will use ERP don’t
agree that the work methods embedded in the software are better
than the ones they currently use, they will resist using the software \
or will want IT to change the ] software to match the ways they
currently do things. This is where ERP projects break down.

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COMMON CAUSES OF DISASTER
There are several common causes of disaster while implementing the
ERP system.

1. Change management & training

2. Poor planning
3. Underestimating IT skills
4. Poor Project management
5. Technology trials
6. Low involvements of top executives
7. Underestimating resources
8. Insufficient software evaluation

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