Enterprise Resource

Planning (ERP)

Basics
Pre-ERP
Centralized ERP Scenario
What is ERP?

 An ERP system is an attempt to integrate

all functions across a company to a single
computer system that can serve all those
functions’ specific needs.
 “Integration” is the key word for ERP
implementation.
 What is ERP?
 It may also integrate key customers and
suppliers as part of the enterprise’s
operation.
 It provides integrated database and custom-
designed report systems.
 It adopts a set of “best practices” for carrying
out all business processes.
What is an ERP System –
definitions
Simplistic Definition
ERP - Enterprise Resource Planning
Detailed Definition
“a business strategy and set of industry-domain-
specific applications that build customer and
shareholder communities value network system by
enabling and optimising enterprise and inter-
enterprise collaborative operational and financial
processes”
What is an ERP – Key
Characteristics
Integration
seamless integration of all the information
flowing through a company – financial and
accounting, human resource information,
supply chain information, and customer
information.
 What is an ERP – Key
Characteristics
Packages
Enterprise systems are not developed in-house
 IS life cycle is different
1. Mapping organizational requirements to the processes
and terminology employed by the vendor and
2. Making informed choices about the parameter setting.
 Organizations that purchase enterprise systems enter into
long-term relationships with vendors. Organizations no
longer control their own destiny.
 What is an ERP – Key
Characteristics
Best Practices
 ERP vendors talk to many different businesses within a
given industry as well as academics to determine the best
and most efficient way of accounting for various
transactions and managing different processes. The result
is claimed to be “industry best practices”.
 The general consensus is that business process change
adds considerably to the expense and risk of an enterprise
systems implementation. Some organisations rebel against
the inflexibility of these imposed business practices.
What is an ERP – Key
Characteristics
Evolving
Enterprise Systems are changing rapidly
 Architecturally: Mainframe, Client/Server, Web-
enabled, Object-oriented, Componentisation
 Functionally: front-office (i.e. sales management),
supply chain (advanced planning and scheduling),
data warehousing, specialised vertical industry
solutions, etc.
Why implement an ERP System?
 To support business goals
• Integrated, on-line, secure, self-service processes
for business
• Eliminate costly mainframe/fragmented
technologies
 Improved Integration of Systems and Processes
 Lower Costs
 Empower Employees
 Enable Partners, Customers and Suppliers
 Conclusion
 ERP systems provide a mechanism for
implementing systems where a high degree of
integration between applications is required
 The Business Case or Value Proposition for
implementation must be outlined
 To successfully implement a proper mix of people,
processes and technology should be maintained
Major Reasons for Adopting ERP

 Integrate financial information

 Integrate customer order information
 Standardize and speed up operations
processes
 Reduce inventory
 Standardize Human Resources
information
 Potential Benefits of ERP
 Internal Benefits
• Integration of a single source of data
• Common data definition
• A real-time system
• Increased productivity
• Reduced operating costs
• Improved internal communication
• Foundation for future improvement
 Potential Benefits of ERP

 External Benefits
• Improved customer service and order
fulfillment
• Improved communication with suppliers and
customers
• Enhanced competitive position
• Increased sales and profits
 ERP Implementation Approaches

 The big bang – install a single ERP system

across the entire organization
 Franchising – Independent ERP systems are
installed in different units linked by common
processes, e.g., bookkeeping.
 Slam dunk – install one or several ERP
modules for phased implementation of key
business processes.
Major Phases of ERP Implementation
(Kent Sandoe, Enterprise Integration)

 Initiation – develop business case, project

scope, and implementation strategy
 Planning – establish implementation team,
determine goals and objectives, establish
metrics
 Analysis and process design – analyze and
improve existing processes, map new
processes to be adopted by the system
 Major Phases of ERP Implementation
(Kent Sandoe, Enterprise Integration)

 Realization – install a base system,

customization, and test the system
 Transition – replace the formal system with
the new system, data conversion
 Operation – monitor and improve system
performance, provide continued training and
technical support
Major Challenges to ERP Implementation

 Limitations of ERP technical capabilities

 Inconsistency with existing business
processes
 Costs - implementation (hardware, software,
training, consulting) and maintenance
 Impact on organizational structure (front
office vs. back office, product lines, etc.)
 Changes in employee responsibilities
Major Challenges to ERP Implementation

 Flexibility of software system upgrades

 Implementation timelines
 Availability of internal technical knowledge
and resources
 Education and training
 Implementation strategy and execution
 Resistance to change
 Benefits of ERP Implementation
(META Group Survey)
 Benefits are mostly in terms of cost containment rather
than revenue increase.
 53 companies (out of 63) reported annual savings of
over $5 millions with the median annual saving of $1.6
million. Nine companies account for 73.4% of the
reported savings.
 The study found that much of the ERP value is in
indirect, non-quantifiable benefits.
 A number of companies surveyed had a negative net
present value.
 ERP Implementation - Key Enablers
(APQC Best-Practice Report)
 The organization is prepared for the change.
 The executive leaders are active and visible in their
support.
 The initiative is seen as a business imperative by
the organization.
 The resources are available to conduct the project
completely.
 A good packaged system is used and not
customized.
 The user group is trained to use the software before
it is implemented.
 ERP Implementation Practices
(APQC Best-Practice Report)

 Technology Excellence
• Organizations rely heavily on the ERP
package as the majority of their application
configuration.
• Organizations implement ERP packages on
time and within budget
• Organizations centralize support groups
within their IT departments
 ENTERPRISE RESOURCE
PLANNING

 Enterprise Resource Planning or ERP is

actually a process or approach which
attempts to consolidate all of a company's
departments and functions into a single
computer system that services each
department's specific needs.
 MODULE
STRUCTURE

 ERP software is made up of many

software modules.
 Each ERP software module mimics a
major functional area of an organization.
 PRODUCTION PLANNING
MODULE

 In the process of evolution of manufacturing

requirements planning (MRP) II into ERP, while
vendors have developed more robust software for
production planning, consulting firms have
accumulated vast knowledge of implementing
production planning module.

 Production planning optimizes the utilization of

manufacturing capacity, parts, components
and material resources using historical
production data and sales forecasting.
 PURCHASING
MODULE
 Purchase module streamline procurement of required raw
materials. It automates the processes of identifying
potential suppliers, negotiating price, awarding purchase
order to the supplier, and billing processes.

 Purchase module is tightly integrated with the inventory

control and production planning modules. Purchasing
module is often integrated with supply chain management
software.
INVENTORY
CONTROL
 Inventory module facilitates processes of maintaining
the appropriate level of stock in a warehouse.

 The activities of inventory control involves in

identifying inventory requirements, setting targets,
providing replenishment techniques and options,
monitoring item usages, reconciling the inventory
balances, and reporting inventory status.

 Integration of inventory control module with sales,

purchase, finance modules allows ERP systems to
generate vigilant executive level reports.
 SALES
MODULE

 Revenues from sales are live blood for

commercial organizations.
 Sales module implements functions of order
placement, order scheduling, shipping and
invoicing.
 Sales module is closely integrated with
organizations' ecommerce websites.
Many ERP vendors offer online storefront as part of
the sales module.
 FINANCIAL
MODULE

 Both for-profit organizations and non-profit

organizations benefit from the
implementation of ERP financial module.

 The financial module is the core of many

ERP software systems. It can gather financial
data from various functional departments,
and generates valuable financial reports
such as balance sheet , general ledger, trail
balance, and quarterly financial statements.
 HR MODULE

 HR (Human Resources) is another widely

implemented ERP module. HR module streamlines
the management of human resources and human
capitals.
 HR modules routinely maintain a complete
employee database including contact information,
salary details, attendance, performance
evaluation and promotion of all employees.

 Advanced HR module is integrated with

knowledge management systems to optimally
utilize the expertise of all employees.
 ADVANTAGES OF
ERP
 Complete visibility into all the important processes,
across various departments of an organization.
Automatic and coherent workflow from one
department/function to another, to ensure a smooth
transition and quicker completion of processes.
 Since ERP is a modular software system, its possible to
implement either a few modules (or) many modules
based on the requirements of an organization. If more
modules implemented, the integration between various
departments may be better.
 ADVANTAGES OF
ERP

 Improvesinformation access and

management throughout the enterprise.
 Improved cost control.
DISADVANTAGES OF
ERP
 The cost of ERP Software, planning,
customization, configuration, testing,
implementation, etc. is too high.
 Too little customization may not integrate the
ERP system with the business process & too
much customization may slow down the
project and make it difficult to upgrade.
 There maybe additional indirect costs due to
ERP implementation – like new IT infrastructure,
upgrading the WAN links, etc.
 DISADVANTAGES OF
ERP

 Choosing the right ERP package is not

easy. The selection process starts with an
identification of system scope, business
objectives and business processes.
 SAP ERP
MODULES

SAP has a number of application modules in

the package. Some of them are:
 Financials
 Controlling
 Investment management
 Treasury
 Integrated Enterprise management
 Sales and distribution
 Production planning and control.
 New Developments In ERP

 Availability of web-based and wireless ERP

systems
 Adoption of easy-to-install ERP systems
 Linkage to other software systems, e.g.,
supply chain management system, e-
commerce, customer relationship
management system