CHAPTER 1 INTRODUCTION TO ERP INTRODUCTION Information Technology is revolutionizing the way in which we live and work.

It is changing all aspects of our life and lifestyle. The amount of calculation power that is available to mankind is increasing at an exponential rate. Computers and communication are becoming integral part of our lives. To survive, thrive and beat the competition in todays world, one has to manage the future. Managing the future means managing the information. IT has many roles to play in the organization. All organizations have certain objectives and goals to achieve. For any organization to succeed, all business units or departments should work towards these common goal. But each department or business function in the organization will have its own goals and procedures. The departmental objectives can sometimes be conflicting. For example the finance department might want to cut down the advertising budget, whereas the marketing department might want more money. Similarly production-planning department might want to reduce the inventory level, but the production people might want to reduce the inventory level, but the production people might want to have more stocks. To success of an organization rests in resolving the conflicts between the various business functions and making them do what is good for the organization as a whole. For this, information is critical. Everybody should know what is happening in other parts of the organization. It is not enough that each department manages its activities efficiently, it should also help other departments manage their functions efficiently. For these to happen, the organization should cease to function of islands of information, each working in isolation. Each and every employee should know what his/her counter-parts are doing, how his/her actions and decisions will affect the other departments. This kind of information sharing was difficult in the early days. Now with the advancement in Information Technology this is possible. IT has a crucial role to play, both at the organizational level and at the departmental level. At the organizational level, IT should assist in specifying objectives and strategies of the organization. IT should aid in developing and supporting systems and procedures to achieve them. At the departmental level, IT must ensure a smooth flow of information across departments, and should guide organizations to adopt the most viable business practices. At this level, IT ensures seamless flow of information across the different departments and develops and maintains an enterprise-wide database. This database will eliminate the need of the isolated data islands that existed in each department and

make the organizations data accessible across the departmental boundaries. The enterprise- wide data sharing has many benefits like automation of the procedures, availability of high quality information for better decision making, faster response time and so on. 1.1. EVOLUTION OF ERP When companies were small and all the different managerial functions managed by a single person, the decisions were made, keeping in mind the overall company objectives. But as company grew, managing the entire operations become impossible for a single person. More and more people were brought in and the different business functions were given to different individuals. When organization become larger, each person hired people to assist him/her and the various departments as we see now, evolved. The size of the department began to increase more and more people were required to do the job. As the departments become large, they become closed and water tight. Each had their own set of procedures and hierarchy. People at most levels within a department, would just collect and pass the information upward. Thus information was shared between departments only at the top level. Most developers ended up developing need-based, isolated information systems that were incompatible and it is no wonder that IT implementations automated only the existing applications and not the business functions.

The system has work around the core activities of the organization, and should facilitate seamless flow of information across departmental barriers. Such as systems can optimally plan and manage all the resources of the organization and hence, they can be called as Enterprise Resources Planning (ERP) systems. An Enterprise is a group of people with a common goal, which has certain resources at its disposal to achieve that goal. The group has some key functions to perform in order to achieve its goal. Resources included are money, manpower, material, and all the other things that are required to run the enterprise. Planning is done to ensure that nothing goes wrong. Planning is putting necessary functions in place and more importantly, putting them together. Therefore Enterprise Resources Planning or ERP is a method of effective planning of all the resources in an organization.

There are many misconceptions about ERP. The first one is that ERP is a computer system. Yes, computer and IT are integral parts of an ERP system, but ERP is primarily an enterprise-wide system, which encompasses corporate mission, objectives, attitudes, beliefs, values, operating styles and people who make the organization. The second misconception is that ERP is for manufacturing organizations alone. This assumption is basically due to the way in which ERP was historically developed from the manufacturing methods such as MRP (Material Requirement Planning) and MRP II (Manufacturing Resource Planning.) 1.2. WHAT IS ERP? (OCT 04,10M) Enterprise Resource Planning (ERP) covers the techniques and concepts employed for the integrated management of businesses by 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. Originally ERP packages were targeted at the manufacturing industry, and consisted mainly of functions for planning and managing core businesses such as sales management, accounting and financial affairs, etc. However in the recent years, adaptation not only to the manufacturing industry, but also to diverse type of industry has become possible and the expansion of implementation and use has been progressing on the global level. 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.

Fig: Integration of information through ERP system

1.3. REASONS FOR THE GROWTH OF THE ERP MARKET(APR 07, 09, 10; 5M) There is no doubt that the market for the Enterprise Resource Planning (ERP) systems is in great demand. Industry analysts are forecasting growth rates of more than 30 % for at least the next 3 years. Now why are so many companies replacing their key business systems? The answer is : To enable improved business performance o Cycle time reduction : the time required to contact other department is reduced. o Inventory reduction: As the data is integrated there is no need to re enter the data and the paperless transaction is done using EDI (Electronic Data Interchange). o Order fulfillment improvement: There is no conflicts between the departments like sales and production so order can be made on time. To support business growth requirements o New Products and New Customers : we can grow our organization by implementing new Products in the market and get the new customers for that product. o Globalize the product: We can Globalize the product for International customers To provide flexible, integrated, real-time decision support o Managers gets the integrated data of different departments at any time to analyze and to take important decisions at the right time. To eliminate limitations in the legacy system: o Integration of the isolated departments o Decision support system o Availability of the right data at right time o Flexibility to change o Supporting latest technologies There are some of the reasons for explosive growth rate of the ERP market and the ERP vendors. As more and more companies are joining the race, the ERP vendors are

shifting their focuses from big fortune 1000 companies to different market segments like medium sized companies and small companies. The future will see the 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 the better products and better services at affordable prices. 1.4. THE ADVANTAGES OF ERP (OCT 04, 05, 07, 08, APR 08; 7M) Installing the ERP system has many advantages, some of the direct advantages include improved efficiency, information integration for better decision making, faster response time for customer queries, etc. And the indirect benefits include better corporate image, improved customer goodwill, customer satisfaction, and so on. The following are some of the direct benefits of the ERP systems. Business Integration: The reason why the ERP packages are considered to be integrated, is the automatic data updation (automatic data exchange among departmental applications) that is possible among the related business components. Since conventional company information systems was isolated departmental functions, almost all were weak in terms of communication and integration of information. In the case of ERP packages, the data of related business functions is also automatically updated at the time of transactions occurs. For this reason, one is able to grasp business details in real time, carry out the various types of management decisions in a timely manner, based on that information. Flexibility: o Multilanguage: It supports different languages so that the company can work in the language they want

1.3. REASONS FOR THE GROWTH OF THE ERP MARKET(APR 07, 09, 10; 5M) There is no doubt that the market for the Enterprise Resource Planning (ERP) systems is in great demand. Industry analysts are forecasting growth rates of more than 30 % for at least the next 3 years. Now why are so many companies replacing their key business systems? The answer is : To enable improved business performance o

Cycle time reduction : the time required to contact other department is reduced. o Inventory reduction: As the data is integrated there is no need to re enter the data and the paperless transaction is done using EDI (Electronic Data Interchange). o Order fulfillment improvement: There is no conflicts between the departments like sales and production so order can be made on time. To support business growth requirements o New Products and New Customers : we can grow our organization by implementing new Products in the market and get the new customers for that product. o Globalize the product: We can Globalize the product for International customers To provide flexible, integrated, real-time decision support o Managers gets the integrated data of different departments at any time to analyze and to take important decisions at the right time. To eliminate limitations in the legacy system: o Integration of the isolated departments o Decision support system o Availability of the right data at right time o Flexibility to change o Supporting latest technologies There are some of the reasons for explosive growth rate of the ERP market and the ERP vendors. As more and more companies are joining the race, the ERP vendors are shifting their focuses from big fortune 1000 companies to different market segments like medium sized companies and small companies. The future will see the 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 the better products and better services at affordable prices. 1.4. THE ADVANTAGES OF ERP (OCT 04, 05, 07, 08, APR 08; 7M)

Installing the ERP system has many advantages, some of the direct advantages include improved efficiency, information integration for better decision making, faster response time for customer queries, etc. And the indirect benefits include better corporate image, improved customer goodwill, customer satisfaction, and so on. The following are some of the direct benefits of the ERP systems. Business Integration: The reason why the ERP packages are considered to be integrated, is the automatic data updation (automatic data exchange among departmental applications) that is possible among the related business components. Since conventional company information systems was isolated departmental functions, almost all were weak in terms of communication and integration of information. In the case of ERP packages, the data of related business functions is also automatically updated at the time of transactions occurs. For this reason, one is able to grasp business details in real time, carry out the various types of management decisions in a timely manner, based on that information. Flexibility: o Multilanguage: It supports different languages so that the company can work in the language they want

Multi currency: It also support different currencies so that if the companyis globalize (multinational) then it could have branches in many countriesand for this it should support different currencies. o Multiple accounting Standards: Organization can have multiple productsand it can have extremely different way of business and information flowfor different products, so there should be different accounting forcalculation of profits, wages, general ledger and so on. Here ERP provideMultiple Accounting Standards for this type of company. To cope withcompany globalization and system unification, this flexibility is essential. Better Analysis and planning capabilities: With the Integration of Information, one can get any information from the enterprise system. Because ofthis it became possible to utilize the decision support system and analysis of datafrom a variety of dimensions,

one is able to give the decision maker theinformation they want thus enabling them to make better decisions. FOR Example: Problem: In 2007, our organization has made 35% more profit then the year 2006, now in2010 the company want same 35% increment in the profit margins, this is theimportant task of the managers to cope with. Solution: Manager will first analyze the data of 2007 from the Archive such that he will getthe information on the tasks to achieve 35% increment, he will analyze all thedepartmental duties assigned that time, To analyze all these information themanager can take a help of DSS (Decision Support System) system to take thedepartmental decision and EIS (Executive Information System) to take thedecision at the organizational level. So the system will help the manager to do thePlanning and also to take better decision to achieve the companys goal. Use of the latest technology: The ERP vendors are very quick to realize that in order to grow and sustain that growth, they had to embrace the latestdevelopments in the field of IT. Therefore, they quickly adapted their systems totake the advantage of the latest technologies like open systems, client/servertechnology, Internet/Intranet, e-commerce, etc. It is this quick adaptation to thelatest change in information technology that makes the flexible adaptation tochange in future business environments possible. It is this flexibility that makesthe incorporation of the latest technology possible during system customization,maintenance and expansion phases.