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ENTERPRISE RESOURCE PLANNING

ENTERPRISE RESOURCE PLANNING

Introduction:

Enterprise resource planning (ERP) is a company-wide computer software system used to


manage and coordinate all the resources, information, and functions of a business from
shared data stores.
An ERP system has a service-oriented architecture with modular hardware and software
units or "services" that communicate on a local area network. The modular design allows
a business to add or reconfigure modules (perhaps from different vendors) while
preserving data integrity in one shared database that may be centralized or distributed

what does this software do?

Take the activities of a typical company or 'Enterprise', its purpose can be loosely
described as 'to manufacture or procure products for sale'. These products may be
tangible or intangible, but basically the company must 'Plan' and 'Control' the use of its
entire resource base to meet these objectives. That is what 'E.R.P. software' does, it helps
the managers and staff of an enterprise to manage its resources to manufacture/procure
the products it sells within one software package.
The single software package 'integrates' its elements or modules into one seamless
package to control the enterprise activities. The most common activities being
Purchasing, Manufacturing, Sales and Accounting.

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ERP AND CYCLICAL STRUCTURE

Origin of the term:

MRP vs. ERP — Manufacturing management systems have evolved in stages over the
past 30 years from a simple means of calculating materials requirements to the
automation of an entire enterprise. Around 1980, over-frequent changes in sales forecasts,
entailing continual readjustments in production, as well as inflexible fixed system
parameters, led MRP (Material Requirement Planning) to evolve into a new concept :
Manufacturing Resource Planning (or MRP3) and finally the generic concept Enterprise
Resource Planning (ERP)

The initials ERP originated as an extension of MRP (material requirements planning;


later manufacturing resource planning) and CIM (Computer Integrated Manufacturing). It
was introduced by research and analysis firm Gartner in 1990. ERP systems now attempt
to cover all core functions of an enterprise, regardless of the organization's business or
charter. These systems can now be found in non-manufacturing businesses, non-profit
organizations and governments.

To be considered an ERP system, a software package must provide the function of at


least two systems. For example, a software package that provides both payroll and
accounting functions could technically be considered an ERP software package
Examples of modules in an ERP which formerly would have been stand-alone
applications include:

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♣ Product lifecycle management,


♣ Supply chain management (e.g. Purchasing, Manufacturing and Distribution),
♣ Warehouse Management,
♣ Customer Relationship Management (CRM),
♣ Sales Order Processing,
♣ Online Sales, Financials ,
♣ Human Resources, and
♣ Decision Support System.

Overview of ERP Solutions:

Some organizations — typically those with sufficient in-house IT skills to integrate


multiple software products — choose to implement only portions of an ERP system and
develop an external interface to other ERP or stand-alone systems for their other
application needs. For example, one may choose to use human resource management
system from one vendor, and the financial systems from another, and perform the
integration between the systems themselves.

This is common to retailers where even a mid-sized retailer will have a discrete Point-of-
Sale (POS) product and financials application, then a series of specialized applications to
handle business requirements such as warehouse management, staff rostering,
merchandising and logistics.

Ideally, ERP delivers a single database that contains all data for the software modules,
which would include:

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
Project management
Costing, billing, time and expense, performance units, activity management
Human resources

Human resources, payroll, training, time and attendance, rostering, benefits


Customer relationship management

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Sales and marketing, commissions, service, customer contact and call center support
Data warehouse and various self-service interfaces for customers, suppliers, and
employees

Access control - user privilege as per authority levels for process execution

Customization - to meet the extension, addition, change in process flow

Enterprise resource planning is a term originally derived from manufacturing resource


planning (MRP II) that followed material requirements planning (MRP) MRP evolved
into ERP when "routings" became a major part of the software architecture and a
company's capacity planning activity also became a part of the standard software activity.
ERP systems typically handle the manufacturing, logistics, distribution, inventory,
shipping, invoicing, and accounting for a company. ERP software can aid in the control
of many business activities, including sales, marketing, delivery, billing, production,
inventory management, quality management and human resource management.

ERP systems saw a large boost in sales in the 1990s as companies faced the Y2K
problem in their legacy systems. Many companies took this opportunity to replace their
legacy information systems with ERP systems. This rapid growth in sales was followed
by a slump in 1999, at which time most companies had already implemented their Y2K
solution

ERPs are often incorrectly called back office systems indicating that customers and the
general public are not directly involved. This is contrasted with front office systems like
customer relationship management (CRM) systems that deal directly with the customers,
or the eBusiness systems such as eCommerce, eGovernment, eTelecom, and eFinance, or
supplier relationship management (SRM) systems.

ERPs are cross-functional and enterprise wide. All functional departments that are
involved in operations or production are integrated in one system. In addition to
manufacturing, warehousing, logistics, and information technology, this would include
accounting, human resources, marketing and strategic management.

ERP II means open ERP architecture of components. The older, monolithic ERP systems
became component oriented

EAS — Enterprise Application Suite is a new name for formerly developed ERP
systems which include (almost) all segments of business, using ordinary Internet
browsers as thin clients

Before :

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Prior to the concept of ERP systems, it was usual for each department within an
organization - such as human resources, payroll and financial - to have its own
customized computer system.

Typical difficulties involved integration of data from potentially different computer


manufacturers and systems. For example, the HR computer system (often called HRMS
or HRIS) would typically manage employee information while the payroll department
would typically calculate and store paycheck information for each employee, and the
financial department would typically store financial transactions for the organization.
Each system would have to integrate using a predefined set of common data which would
be transferred between each computer system. Any deviation from the data format or the
integration schedule often resulted in problems

After :

ERP software combined the data of formerly separate applications. This simplified
keeping data in synchronization across the enterprise as well as reducing the complexity
of the required computer infrastructure. It also contributed to standardizing and reducing
the number of software specialties required within IT departments

The ERP Challenges:

At one point in the past, many people believed that total management information
systems were the way to answer all important management questions. Organizations
invested many millions in the effort to develop their own total MIS system, and, with few
exceptions, these attempts fell very far short of the mark. The widely accepted
explanation was that the technology, that was then available, was not up to the task.

Much of the same sort of thing seems to be happening today with enterprise resource
planning (ERP) systems. These aim to provide an integrated, enterprise-wide information
service that allows the organization to efficiently respond to any changes in level of
market demand. And, just as they invested heavily in total MIS systems, many
organizations are investing millions in the effort to install their own ERP system. While
there have been some success stories, the evidence suggests that most organizations have
failed to realize the expected benefits from their (all too expensive) efforts to install ERP.

It is my contention that full-blown ERP systems are the right answer for only some
organizations. To understand what ERP can and cannot deliver, it helps to go back to the
manufacturing resource planning (MRP) systems that preceded ERP. Leading vendors
like SAP and Baan offered MRP systems before they were reborn as ERP systems. And
the current ERP- system logic has many parallels with the logic that was used with earlier
MRP systems.

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The challenge facing manufacturing can be described in terms of buffer stock. It's easy to
put a large buffer stock in front of every production stage. That work-in-progress allows
the separate stages to run at peek efficiency. With everything at peek efficiency, overall
factory productivity should be high. Nice theory, but it didn't work as planned. The stock
of work-in-progress was expensive. Nothing moved very rapidly. More and more work
became"expedited"orders.

Successful MRP systems replaced the old buffer stocks with better information. The cost
of production went down. Even more important, the response time of the factory
improved, and the firm was much more responsive to changing markets..

This manufacturing transformation was relatively simple - everyone could see work-in-
progress, and could see the "expedite" job tags. ERP systems take a similar approach, but
now the buffer stocks are generalized to include men, money, material, and time. All
efforts are focused on driving out the need for buffer stocks across the entire
organization. When successful, the results from ERP can be even more dramatic than
they were with MRP.

Initially, people will not be very comfortable in the new ERP world. The ERP logic strips
away buffer stocks and subjects everyone to an unrelenting and constant pressure to
produce. The required social transformation is a major undertaking. It needs resources,
and it needs constant support from the most senior people in the organization. People
must believe the organization has no option but to undergo the change, however painful
this may prove to be.

Senior executives must find ways to make the required changes necessary and inevitable
to the people who will have to live through the process. Some of the problems with ERP
systems can be traced back to a failure to make the huge organizational and social
changes that are required seem necessary and inevitable. In some cases, the problems
with ERP can be traced back to a failure to recognize that a major organizational
transformation was required. And in some cases, the technology used with the chosen
ERP system was not up to the task - the organization was too large, or too diverse, or too
whatever.

However, my main concern is for organizations that should not strive for the efficiencies
that can be provided by total ERP systems. There is a very real cost behind the focus
demanded by ERP. Everything and everyone is focused on meeting the objectives set for
the organization. If all the market demands is a continuing refinement in how those
objectives are to be met, then ERP can fully deliver on its promise. Some markets, some
of the time, demand fundamental change in how objectives are to be met.

The problem, to my way of thinking, lies with the idea of a total ERP system. Most
organizations would benefit from having ERP applied to their current "today" processes.
It is almost always wise to keep the "tomorrow" part of the organization outside the
relentless driving logic of ERP. A properly installed ERP system can buy an efficient

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"today." An effective "tomorrow" needs people with a vision for the future, and the
freedom to make it happen.

Implementation :

Because of their wide scope of application within a business, ERP software systems are
typically complex and usually impose significant changes on staff work practices,
Implementing ERP software is typically not an "in-house" skill, so even smaller projects
are more cost effective if specialist ERP implementation consultants are employed The
length of time to implement an ERP system depends on the size of the business, the scope
of the change and willingness of the customer to take ownership for the project .A small
project (e.g., a company of less than 100 staff) may be planned and delivered within 3-9
months; however, a large, multi-site or multi-country implementation may take years.

Some popular methods for implementation are as follows

Joint ventures with the Respective Industry


The company need not necessarily implement ERP all on its own. They can as well share
it with leading players in the same industry. This will ensure that the risks will not be
heavy in the case of loss. This practice is assuming greater significance in the current
scenario. The sharing allows them to have an interface with the systems on the basis of a
common platform. This is catching up in the market with the only trouble being
reluctance of competitive firms to come together on a mutual agreement for fear of losing
business tactics. It is also seen as ERP implementation problem solution.

Though the companies are at liberty to create security for their respective information
there will not be any protection for the (pool of) records in the common database.
However this has helped largely in many aspects. For e.g. the medical history of a patient
brought in an emergency condition can be immediately accessed though ERP. This
particular fact has itself saved many lives. On the contrary they would have to go through
the rigorous process of finding the patient's identity and the steps aftermath which brings
down the chances of the patient's survival are very minimal, in the absence of ERP. This
is one of ERP implementation support. Perhaps there are many risks for ERP
implementation.

Doing it all alone


This is in fact one of the primitive methods and is no doubt followed till date. This
method takes a lot of risks in this method. But if they are calculated properly then the
regime would be inscribed as a golden period in the company's history. The simple
formula behind this phenomenon is that the company should go for it subject to its
financial potential, requirements, technical acumen management policy and similar facts.
All these will help them to arrive at ERP implementation problem solution.

Full/Partial Implementation
It has always been said that ERP products and services are purely based on the needs and
resources of the company. This is not a risk for ERP implementation. Hence the

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companies can choose to go for a full fledged ERP system and implement it throught the
organization and thereby interlink the whole process and the people concerned.
Otherwise they may prefer to go for an ERP system that performs a particular function of
the company. This is an important step in choosing the appropriate ERP software but at
the same time it also adds more value to the implementation process. It is also an
important ERP problem solution.

The following are steps of a data migration strategy that can help with the success of an
ERP implementation:

1. Identifying the data to be migrated


2. Determining the timing of data migration
3. Generating the data templates
4. Freezing the tools for data migration
5. Deciding on migration related setups
6. Deciding on data archiving

Maintenance and support services :

Maintenance and support services involves monitoring and managing an operational ERP
system. This function is often provided in-house using members of the IT department, or
may be provided by a specialist external consulting and services company.

latest trends in ERP:

Need based applications


Organizations had to implement ERP throught their systems irrespective of the fact
whether they help in all the functions or in one particular function. This was proving to
be a big hurdle to the firms. In addition this remained as the main disadvantage or setback
of ERP. They had to purchase the whole applications even if it meant that most of them
would be idle except for the core function.

The latest ERP software programs have overcome this menace. They offer need based
applications. The firms need not be worried even if these Software Programs were not
available. They were given the liberty to purchase and install Software Programs
pertaining to that particular function. This advantage has helped to increase the scope of
ERP not only among large firms but also small and medium business as well.

Expenditures
ERP was a very costly affair. Thanks to the intrusion of internet and open source
applications. This has helped S.M.E.'S to enter the market of prospective buyers.This has
not only widened the horizon of S.M.E.'s but also increased the usage among large firms.

These large firms were not able to invest huge money in spite of adequate funds. Now
that the spending on ERP gets reduced there are no hesitations to show the green signal

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for fear of heavy monetary outlay. It is encouraging to notice the improving IT ERP
trends.

Reduction in implementation time


ERP was discouraged by companies because they took such a long time to get installed
and set the whole process into action. Since this resource was spent excessively there
were chances for reduction in potential business and losing man-hours.

The current day ERP applications are less complex to install and train. This has reduced
the amount of time spent on ERP.Companies are thereby assured of spending lesser time
for ERP.

Open Source, Web enabled and wireless technologies

These are three important elements that have rejuvenated the functioning of ERP.Open
Source ERP has done away with the hassles of paying license fees not only during
installation but also whenever a modification is made. The company is relieved from
depending even for mince matters.

Web enabled ERP helps in making the enterprise operations go online. Any stakeholder
or third party can access the required information very easily and that too by sitting
anywhere in the world. This proves to be of great help especially during emergencies
when the details are to be sourced with immediate effect.

Wireless ERP has helped organizations to make use of the communication channels
effectively and efficiently. It has made it possible for many elements to operate in ERP
which were otherwise not possible. Wireless ERP is nothing but sharing enterprise
information through devices like internet and other devices making it possible for
outsiders to access

ERP Failures:
All modules of ERP are scalable and interactive in a client/server environment. This wide
selection enables the tailoring of solutions specific to the needs of individual companies
and numerous vertical industry segments. If not used effectively however the result will
be Erp Failures.

The failures in one or more of those four components could cause the failure of an ERP
project. The failures in hardware are more easier to identify and to fix, we'll examine the
failures in software implementation, business process and user acceptance.

Failure of ERP Software Implementation

Module-based ERP software is the core of ERP systems. Most ERP projects involve
significant amount of customizations. Packaged ERP software modules have built-in
functionality that work in a standard and simplified enterprise environment. However,

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every organization is unique in data requirements and business processes. It is the


customizations that transform packaged ERP software into ERP software that meets
organizations' individual business processes and operations. Long and expensive
customization efforts often result the pass of release deadline and budget overrun.
Customizations make the software more fragile and harder to maintain when it finally
goes to production. Major changes may be required in the later stage of the
implementation as a result of incomplete requirements and power struggles within
organizations

Failure of Accommodating Evolution of Business Processes

Business processes fall into three levels - strategic planning, management control and
operational control. Organizations continuously realign their business processes of all
levels in response to the ever-changing market environment. Many ERP systems aren't
flexible enough to accommodate evolution of business processes. AN ERP system that
worked well last year may need major overhaul.

Failure of User Acceptance

The users of ERP systems are employees of the organizations at all levels. ERP projects
usually modify the company's business processes which create extra workload for
employees who use them initially. They may not think that the workflows embedded in
the software are better than the ones they currently use. Ongoing end-user involvement
and training may ease the difficult in organization's adaptation of new systems and new
processes.

Advantages :

In the absence of an ERP system, a large manufacturer may find itself with many
software applications that neither talk to each other nor interface effectively. Tasks that
need to interface with one another may involve:

• Integration among different functional areas to ensure proper communication,


productivity and efficiency
• Design engineering (how to best make the product)
• Order tracking, from acceptance through fulfillment
• The revenue cycle, from invoice through cash receipt
• Managing inter-dependencies of complex processes bill of materials
• Tracking the three-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 at a
granular level.
• ERP Systems centralize the data in one place, example customer , financial data.
This eliminates the problem of synchronising changes and can reduce the risk of

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loss of sensitive data by consolidating multiple permissions and security models


into a single structure.

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, for example, might involve a disgruntled employee intentionally
modifying prices to below-the-breakeven point in order to attempt to interfere with the
company's profit 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 tools

Disadvantages :

Problems with ERP systems are mainly due to inadequate investment in ongoing training
for the involved IT personnel - including those implementing and testing changes - as
well as a lack of corporate policy protecting the integrity of the data in the ERP systems
and the ways in which it is used.

Disadvantages:

• 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 (This has led 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 companies—this 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
customers.
• ERP Systems centralize the data in one place, example customer , financial data.
This can increase the risk of loss of sensitive info, if there is any security breach

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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. It is, in a sense, a convergence of people, hardware and software into an
efficient production, service and delivery system that creates profit for the company.

E.R.P TO THE NEXT GENERATION:

E.R.P. 2 takes standard E.R.P. and extends it by providing for closer relationships
between an enterprise and its customers and suppliers. An example of this closer
relationship is that an enterprise will allow customers to directly interact with its
computer system so allowing them to place orders and investigate the status of its
account, outstanding deliveries and orders. Suppliers can be permitted to monitor stock
levels and suggest when items need replenishing.
Due to the level of system integration needed between enterprises to achieve E.R.P. 2,
this remains, for the moment, the preserve of large companies with the I.T. resources to
make it possible

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