[SEMINAR 23] ENTERPRISE RESOURCE PLANNING

ABSTRACT

          With tremendous growth of global trade of flexible business information system that quickly response to rapid changes and customer needs (Due to technology development which has greatly shortened product – life cycle), if it has to complete in the world market. “A successful Enterprise will be the one which is able to most effectively gather. The vital information and quickly act upon it”.

          To be successful in the present and future world market, a high level of interaction and co-ordination along the entire supply line is essential. This is the basis of ERP. ERP has closed – loop, totally integrated and on-line solution. ERP caters to the information requirements of the entire enterprise and tries to provide a “Total solution”, that is, it is a business solution. ERP packages can be applied to all types enterprises like manufacturing, service, banking insurance etc. The main benefits ERP is it reduces quality cost, enhances greater flexibility, increases manifold in business and hence results in improved and better customer satisfaction and vendor performance.

EVOLUTION OF ERP

          When companies were small and all the different managerial functions managed by a single persons, the decisions were made, keeping in minds the overall company objectives. But as companies grow, managing the entire operations became impossible for a single person. More and more people were brought in and the different business functions were given to different individuals. When the organization became larger, each person hired people to assist him/her and the various departments as we see now, evolved. The size of the departments began to increase as more and more people were required to do the job.

          System has to work around the core activities of the organization, and should facilitate seamless flow of information across departmental barriers.

          The misconception is that ERP is for manufacturing organization alone. This assumption is basically due to the way in which ERP was historically developed from the methods of Material Requirement Planning (MRP) and Manufacturing Resource Planning (MRP-II), which are relevant to manufacturing organizations. In the manufacturing industry, MRP became the fundamental concept of production management and control in the mid 1970’s. (As this time BOM (Bill of Materials) – which is purchase order management that utilizes part list management and parts development – was the prevailing trend) And the concept unfolded from order inventory management of materials to plant and personnel planning and distribution planning, which in turn became MRP – II. This incorporated financial accounting, human resource management functions, distribution management functions and arrangement accounting functions. It came to globally cover all areas of enterprise mainstay business and eventually, began to be called ERP. But in reality, the concept of enterprise wide planning of resources is not limited to any particular segment of industry.

ERP AND ITS PHASES

          Enterprise Resource Planning (ERP) covers the techniques and concepts employed of the integrated management of businesses as a whole from the viewpoint of the effective use of management resources, to improve the efficiency of an enterprise. ERP packages are integrated (covering all business functions) software packages that support the above ERP concepts.

          ERP software is designed to model and automate many of the basic processes of a company, from finance to the shop floor, with the goal of integrating information across the company and eliminating complex, expensive links between computer system that were never meant to talk to each other.

          Figure shows how information is integrated within an organization using an ERP system.

Phases of ERP :

          The different phases of the ERP implementation are given below :

Pre-evaluation screening

          It is always better to do a thorough and detailed evaluation of a small number of packages, than doing a superficial analysis of dozens of packages. Hence, the company should do a pre-evaluation screening to limit the number of packages that are to be evaluated by the committee.

Package Evaluation :

          The evaluation / selection process is one of the most important phases of the ERP implementation, because the package that you select will decide the success or failure of the project.

Project Planning Phase :

          This is the phase that designs the implementation process. It is in this phase that the details of how to go about the implementation are decided.

Gap Analysis :

          This is arguably, the most crucial phase for the success of the ERP implementation, put very simply, this is the process through which companies create a complete model of where they are now, and in which direction they want to head in the future.

Reengineering :

          It is in this phase that the human factors are taken into account.

Configuration :

          This is the main functional area of the ERP implementation. Configuring a company’s system reveals not only the strengths of a company’s business process but also and perhaps more importantly-its weakness.

Implementation Team Training :

          This is the phase where the company trains its employees to implement and later, run the system.

Testing :

          This is the phase where you try to break the system. You have reached a point where you are testing real case scenarios.

Going Live :

          This is it, Lights on, switches thrown, gloves off. On the technical side, the work is almost complete – data conversion is done, databases are up and running; and on the functional side, the prototype is fully configured and tested and ready to go operational.

End-user Training :

          This is the phase where the actual users of the system will be given training on how to use the system. This phase starts much before the system goes live.

Post – Implementation (Maintenance Mode)

          Once important factor that should be kept in mind is that he post – implementation phase is very critical. Once the implementation is over, the vendors and the hired consultants will go. The reap the full benefits of the ERP system, it is very important that the system should get enterprise wise acceptance.

          Just as courtship and honeymoons are different from marriages, living with the ERP systems will be different from installing them. Projects for implementing the ERP systems get a log of resources and attention. However, an organization can only get the maximum value of these inputs if it successfully adopts and effectively uses the system.

FUNCTIONAL ARCHITECTURE OF ERP

          The generic architecture of an ERP package viewed from the business process model consists of functions such as customer order processing and execution, customer service functions, financial applications, manufacturing applications, materials applications, human resource applications, information reporting application etc.

          Many of the ERP vendors offer their ERP, products consisting of different modules. This provides flexibility or the implementing companies.

          The underlying business process activities may vary depending on the industry segment and nature of the business. However, at a broad level, the business functionality can be generalized in the following form.

1)   Sales and Marketing

2)   Service

3)   Distribution and Transportation

4)   Financing and Accounting

5)   Project

6)   Materials

7)   Quality

8)   Manufacturing

9)   Plant Maintenance

10)Human Resources

REASOSNS FOR THE GROWTH OF THE ERP MARKET

          There is no doubt that the market for Enterprise Resource Planning (ERP) systems is in great demand. Industry analysts are forecasting growth rates of more than 30% for at least the next five years. Why are so many companies replacing their key business system ? The answer is :

• To enable improved business performance
• Cycle time reduction
• Increased business agility
• Inventory reduction
• Order fulfillment improvement
• To support business growth requirements
• New products / product lines, new customers
• Global requirements including multiple languages and currencies
• To provide flexible, integrated, real time decision support
• Improve responsiveness across the organization
• To eliminate limitation in legacy systems.
• Century dating issues
• Fragmentation of data and processing
• Inflexibility to change
• Insupportable technologies
• To take advantage of the untapped mid-market (medium size organizations)
• Increased functionality at a reasonable cost
• Client server / open systems technology
• Vertical market solutions

ERP AND RELATED TECHNOLOGIES

          ERP is an abbreviation for Enterprise Resource Planning and means, the techniques and concepts for the integrated management of businesses as a whole, from the viewpoint of the effective use of management resources, to improve the efficiency of an enterprise.

          ERP systems serve an important function by integrating separate business functions – into a single application. ERP system have following significant limitations.

1)   Managers cannot generate custom reports or queries without help from a programmer and this inhibits them from obtaining information quickly, which is essential for maintaining a competitive advantage.

2)   ERP systems provide current status only, such as open orders. Managers often need to look past the current status to find trends and patterns that aid better decision-making.

3)   The data in the ERP application is not integrated with other enterprise or division system systems and does not include external intelligence.

          There are many technologies that help to overcome these limitations. These technologies, when used in conjunction with the ERP package help in overcoming the limitations of a standalone ERP system and thus, help the employees to make better decisions. Some of these technologies are :

• Business Process Reengineering (BPR)
• Management Information System (MIS)
• Decision Support Systems (DSS)
• Executive Information Systems (EIS)
• Data Warehousing
• Data Mining
• On-line Analytical Processing (OLAP)
• Supply Chain Management

THE ADVANTAGES OF ERP

          Installing an ERP system has many advantages – both direct and indirect. The direct advantages include improved efficiency, information integration for better decision making, faster response time to customer queries etc. The indirect benefits include better corporate image, improved customer goodwill, customer satisfaction, and so on., The following are some of the direct benefits of an ERP system:

Business Integration :

          The first and most important advantage lies in the promotion of integration. The reason why ERP packages are considered to be integrated, is the automatic data updating (automatic data exchange among applications) that is possible among the related business components., In the case of large companies in particular the timing of system construction and directives differs for each product and department/function and sometimes, they are disconnected. For this reason, it has become an obstacle in the shift to new product and business classification.

Flexibility :

          The second advantages of ERP packages their flexibility. Different languages, currencies, accounting standards and so on can be converted in one system., And functions that comprehensively manage multiple locations of a company can be packaged and implemented automatically.

Better Analysis and Planning Capabilities :

          Yet another advantage is the boost to the planning functions. By enabling the comprehensive and unified management of related business and its data, it becomes possible to fully utilize many types of decision support systems and simulation functions.

Use of Latest Technology :

          The fourth advantage is the utilization of the latest developments in Information Technology (IT). The ERP vendors were very quick to realize that in order to grow and to sustain that growth, they had to embrace the latest developments in the field of Information Technology.

          These are some of the advantages for the explosive growth rate of the ERP markets and the ERP vendors. As more and more companies are joining the race, the ERP vendors are shifting their focus from big – Fortune 1000 – companies to different market segments (medium size companies, small companies, etc.) The future will see fierce battle for market share and mergers and acquisitions for strategic and competitive advantage. The ultimate winner in this race will be the customer, who will get better products and better service at affordable prices.

REFERENCES

1)           ERP by Alexis Leon

2)           MIS by Dr. Milind Oka 

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