ENTERPRISE RESOURCE PLANNING

Definitions

Minahan (1998) defines ERP as a complex software system that ties together and
automates the basic processes of a business.

Kumar et al. (2000) define enterprise resource planning (ERP) systems as “configurable
information systems packages that integrate information and information-based processes
within and across functional areas in an organization”

Al-Mashari and Zairi (2000) states that ERP represent an optimal enterprise-wide
technology infrastructure. The basic architecture of an ERP system builds on one
database, one application, and a unified interface across the entire enterprise.
 What is ERP?
• Enterprise resource planning (ERP) is a process used by companies to
manage and integrate the important parts of their businesses.
• ERP applications allow the different departments to communicate and share
information more easily with the rest of the company. It collects information
about the activity and state of different divisions, making this information
available to other parts, where it can be used productively.
• ERP software can integrate all of the processes needed to run a company.
• Businesses employ enterprise resource planning (ERP) for various reasons,
such as expanding business, reducing costs, and improving operations.
• Integrating and automating business processes eliminates redundancies,
improves accuracy, and improves productivity.
• Some businesses benefit from enhanced reporting of real-time data
from a single source system.
• Accurate and complete reporting help companies adequately plan,
budget, forecast, and communicate the state of operations to the
organization and interested parties, such as shareholders.
• ERPs allow businesses to quickly access needed information for clients,
vendors, and business partners, contributing to improved customer and
employee satisfaction, quicker response rates, and increased accuracy
rates.
• Departments are able to collaborate and share knowledge in a better
way.
Functional areas in business: Marketing , finance, HR, production.

Stand alone system ERP

MARKETING FINANCE
finance HR

ERP

marketing Production
PRODUCTION HR
An ideal ERP system is when a single database is utilized and contains all data for various software modules. These
software modules can include:
1. Manufacturing: Some of the functions include; engineering, capacity, workflow management, quality control,
bills of material, manufacturing process, etc.

2. Financials: Accounts payable, accounts receivable, fixed assets, general ledger and cash management, etc.

3. Human Resources: Benefits, training, payroll, time and attendance, etc

4. Supply Chain Management: Inventory, supply chain planning, supplier scheduling, claim processing, order entry,
purchasing, etc.

5. Projects: Costing, billing, activity management, time and expense, etc.

6. Customer Relationship Management: Sales and marketing, service, commissions, customer contact, calls center
support, etc.

7. Data Warehouse: Usually this is a module that can be accessed by an organizations customers, suppliers and
employees.
 EVOLUTION OF ERP

1. During the 1960s most organizations designed, developed and implemented centralized computing systems, mostly
automating their inventory control systems using inventory control packages (IC).
2. Material requirements planning (MRP) systems were developed in the 1970s which involved mainly planning the
product or parts requirements according to the master production schedule.
3. Following this route new software systems called manufacturing resources planning (MRP II) were introduced in the
1980s with an emphasis on optimizing manufacturing processes by synchronizing the materials with production
requirements.
4. ERP systems first appeared in the late 1980s and the beginning of the 1990s with the power of enterprise-wide inter-
functional coordination and integration.
5. During the 1990s ERP vendors added more modules and functions as “add-ons” to the core modules giving birth to the
“extended ERPs.”
6. ERP extensions include advanced planning and scheduling (APS), e-business solutions such as customer relationship
management (CRM) and supply chain management (SCM).
 Characteristics OF ERP

• Real time operation

• Integration of all business activities
• Process view rather than function view
• Flow of information
• Best practices
 NEED FOR ERP
• Globalization and fierce competition
• Need of integrating , coordinating and automating the cross functional data and
information in the form of a single data model for the entire organization.
• To bring flexibility in the business process, standardize and streamline business
process
• Reduce redundancy of data and optimize the workflow
• Better analysis and planning capabilities: implementation of ERP software enable
organization to perform an efficient analysis of business process by the use of latest
database technology, data ware house and business intelligence mechanism. The
result of data analysis process enables the business organization to take various types
of decision to plan the future strategy.
• Use of latest technology : the technical version of ERP software are changing according
to the latest change in hardware models like server configuration network devices and
also to the software models like various versions of supporting operating system.
 Role of manager in implementing ERP
• Commitment and support: top management is responsible of initiating
the project , devising strategies, and goals, and provide direction to
achieve them. They should act like the role model for implementing
ERP, top management’s commitment is vital to the its success.
• Change Management: introduction of ERP system brings change which
might cause resistance. So this change has to be managed. Three stage
process ( dismantle, changeover and bind) has to be followed. Ensure
cooperation among the departments caused because of integration.
Manage the expectation of the external stake holders like the customer,
supplier and distributors from the new system is another important
task.
• Cost consideration : the cost and time constraints are to be taken into
consideration for choosing the right ERP packages.
• Communication: the top management needs to communicate its vision and
strategies effectively. It is also required for change management and for
understanding suppliers and customers expectations.
Communication plan should be made :
create awareness
give demonstration
explain strategies
address queries and grievances
provide periodic updates

Risk Management: helps to face unexpected crisis. Contingency plans and systems
are developed to give early warning signal for any deviations. Corrective action
should be taken to rectify the deviations
• Trainings: ERP systems are complex, contain several modules and
demand rigorous training. The end users at all levels of the organisation
should be trained as per their needs.
• Project team competence: Ensuring that the different members of the
team involved in the ERP implementation have the necessary skills to
perform the transition and lead the change. Involves technical skills.
• IT infrastructure: Data in the organisation must be compatible with the
standards used in the ERP system. Analysis of current data and their
conversion is required. There should be allocation of sufficient resources
at all stages of implementation.
• Vendor relationship: vendor support is crucial.
 ERP IMPLEMENTATION COST COMPONENT

12% hardware

43% re-engineering
15% software

15% training & chain

management

15% data conversion

hardware software training and chain management

data conversion re engineerinmg
 Issues In ERP Implementation

• Pre-implementation issues : implementation has three stages,

pre-implementation, during implementation, and post implementation. There can be
issues in the first stage as compared to the other two stages comparatively lesser.
• Complexity of ERP systems: there is a lack of common standard across different ERP
vendors. There exist several standards that are either emerging or evolving , which
result in faulty implementation. So organizational requirement has to be understood
and then the package should be chosen.(b) Integration of different function is another
issue. (c) Another complexity is re-engineering existing business process.
• Hiring and Managing consulting firm : Since ERP implementation brings significant
changes in the system, third party (vendors) help is taken for services like such as
consultation, customization, and support.
• Knowledge constraints: proper knowledge is important because it not only not only
help large organizations to change their mindset and implement ERP system but also
guide small organizations to choose the right ERP package, considering the cost and
requirement issues.
 Benefits of ERP

• Improved efficiency: This is achieved by reduction of cycle time, inventory

reduction, order fulfillment, improving support to supply chain, management, etc.
• Better decision making: The decision making procedure become easier because
of highly structured programmed process. These processes governs days to day
operations and produces reports in structured form, which are further used by
top management of organization to meet with its basic goals and objectives and
to monitor the whole organization.
• Quick response time to customers: The system is easy to operate so, that not
much computer skills are required to handle the operations. Because of its
comprehensive nature the system avoids unnecessary duplication and
redundancy in data gathering and storage. Thus the response time to customer is
reduced.
• Business integration: ERP creates the common database across the organization which
is used by various departments within the organization. The ERP supports the flow of
information within department automatically. This business integration capabilities
makes it easy to group business details in real time and carry out various types of
management decision in time. The support systems like DSS can use this common
database. Thus information and the data are on the fingertip of top level management.
• 6. Analysis and planning capabilities: Through different types of decisions support
systems and simulation function, ERP makes the analysis of data easier. The DSS also
supports the middle and top management for tactical and strategic planning.
• 7. Technology support: Utilization of latest development in Information technology is
quickly adapted by the ERP packages. Distributed system, open system, client server
technology, internet, intranet, E – commerce, CALS (Computer aided Acquisition and
Logistic Support) are some examples of flexible environment adopted by ERP. The ERP
packages itself design in a way that they can incorporate with latest technology even
during the customization, maintenance and expansion phases.
 EMERGING TRENDS OF ERP APPLICATION

• IOT infused ERP: At present customers want everything to go online so as to increase accessibility & availability
of a certain product all over the world. Moreover, vendors are also adopting these methods for the automatic
streaming of the data through the channels made available with the use of internet. Therefore,IOT is an
upcoming trend in an ERP.
• Two-track ERP: for the sake of cost reduction by the employers it is further suggested that a two-level or two-
track ERP should be implemented instead of a centrally located ERP at the head office.
• AI infused ERP: the infusion of an ERP with the artificial intelligence is an assumed future trend as the users,
day to day problem solving techniques & the recent technologies will soon going to change. This advent is in
lieu of optimizing the operational cost.
• Block chain technology on ERP: this technology brings the benefits of providing the services with minimum risk.
• Business intelligence over ERP: Business intelligence plays a vital role as it provides the predictive analysis by
scanning the past experiences of an organization & having an insight in the past ERP data of an organization.
• ERP on Cloud: now a day’s ERP is moving fast on cloud as the data is growing day by day. Facts suggest that
there is a drift towards cloud technology in the past five years & it will speed up even fats in the next five years.
• Mobile ERP: mobile ERP is highly required today as it gives the freedom of accessing the official data on the go,
thereby making it flexible for the employees. It is mainly helpful in an emergency case where an employee is
unable to reach for the office.
 ERP APPLICATION IN FUNCTIONAL AREAS

ERP systems can access key HCM data to

• Use employee and team performance to determine training needs and
monitor results to see if output increases.
• Determine whether employee turnover rates in a particular region
impact revenues.
• Use HCM data on employee skills and certification in bidding for new
projects and facilitate professional services automation in ERP.
• Incorporate workplace management functions like time and attendance
into job costing analysis.
 Financial management

• Financial accounting system: Reduces paper work and helps streamline

financial planning process, simplify all financial procedures.
• Fixed asset management system : Allows easily and quickly to control and
track non depreciating or depreciating financial company assets and
provides the workers with comprehensive reports about valuation, assets
and depreciation.
• Financial dashboards, reporting and analytics system : Helps monitor and
operates your business financial performance utilizing real-time dash boards
with expenses, optimize cash management and easily create various
financial records as per requirement of the company.
• Payment management system: helps the client in accepting huge variety of
payment command options.
• Budgeting and forecasting : controls workflow management, multi-dimensional
information collection, dynamic assumption and formulas and full financial planning
statements.
• Private team collaboration program: organize special discussion groups that manage
permanent communication about financial planning and to generate collaborative
online documents on diverse financial procedures.
• Modeling and administration system: ability to budget in manifold world currencies,
stores operational and financial metrics and accounts and operates various models
for product planning and complex sales.
• Billing management and invoicing system: helps to automate all the financial
procedures, exclude the risk of errors and provide the clients with the bills as soon as
possible and speed up payment process.
• Integration with other systems : it helps to exchange information with any external
applications, online financial dashboards, email calendar notes,etc.
 Supplier Relation Management
• Make informed and well- considered purchase decisions : manage
procurement process, streamline procurement function, and transform into
strategic weapon. Right materials and services can be sourced quickly and
cost effectively.
• Supplier Management: mange your suppliers, define performance
parameters and rate your supplier.
• Take better procurement decisions using supplier information.
• Purchasing: mold the application to your business needs, not the other way
round. Follow industry best practices for purchases. Have the desired
controls over your purchase.
• Receiving : record comprehensive details related to goods received. Perform
multiple transactions in a single screen . Compare and document the quality
of goods received with the related expectations stated in the purchase order.
• Subcontracting : manage the entire process end-to-end. Effective order
management with pricelist and BOM based order capabilities. Track
items in WIP( work in progress), get item wise and sub-contractor wise
information on any given date.
• Imports : specify and utilize multiple currency options for overseas
suppliers. Quickly prepare import purchase orders using features like in-
built letter of credit template. Track import purchases and receipts
efficiently, and cut down costs.. Ensure statutory compliance with duty
calculations and payments.
• Supplier portal: enable vendors to access real time information
independently , anytime from anywhere. Put interactions with suppliers
on a hands-free mode and save time and effort.
 Inventory Management
• Overall inventory management: pre built automated solution which
helps in streamlining all inventory activities. Helps in providing real-
time visibility of inventory across the operations.
• Item administration: manage different items with easy tagging,
classification and item analysis.
• Warehouse management : track items right from the entry as a raw
material to their exit as a finished good to the supplier/customer.
• Inventory replenishment : maintain accurate inventory levels
matching up with the requirements and easily know when to procure
a material, thus avoiding unnecessary wastage.
• Quality concerns : allows seamless integration of quality management
with all other business activities, especially inventory.
• Physical inventory handling : map and validate physical and system
recorded inventory levels.
• Inventory analysis : maintain optimum inventory levels to meet the needs
of both your customers operations by various inventory analysis methods.
• Requirement planning : MRP helps in ensuring that appropriate material
levels are available for production. Necessary products are delivered and
reduce waste by maintaining the lowest possible material and product
levels in the stock.
• MPS (master production schedule) decides what is manufactured, what
material is procured, which schedule planner is to be followed to make
them.