Chapter: 1. Enterprise Resource Planning

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1 Chapter: 1 Enterprise Resource Planning Introduction Enterprise Resource Planning is the latest high end solution, information technology has lent to business application. The ERP solutions seek to streamline and integrate operation processes and information flows in the company to synergies the resources of an organization namely men, material,' money and machine through information. Initially implementation of an ERP package was possible only for very large Multi National Companies and Infrastructure Companies due to high cost involved. Today many companies in India have gone in for implementation of ERP and it is expected in the near future that 60% of the companies will be implementing one or the other ERP packages since this "will become a must for" gaining competitive advantage. ERP (Enterprise Resource Planning) is the evolution of Manufacturing Requirements Planning (MRP) II. From business perspective, ERP has expanded from coordination of manufacturing processes to the integration of enterprise-wide backend processes. From technological aspect, ERP has evolved from legacy implementation to more flexible tiered client-server architecture. The following table summarizes the evolution of ERP from 1960s to 1990s. Features of ERP Some of the major features of ERP and what ERP can do for the business system are as below: ERP facilitates company-wide Integrated Information System covering all functional areas like Manufacturing, Selling and distribution, Payables, Receivables, Inventory, Accounts, Human resources, Purchases etc., ERP performs core corporate activities and increases customer service and thereby augmenting the Corporate Image. ERP bridges the information gap across the organization.

2 ERP provides for complete integration of Systems not only across the departments in a company but also across the companies under the same management. ERP is the only solution for better Project Management. ERP allows automatic introduction of latest technologies like Electronic Fund Transfer (EFT), Electronic Data Interchange (EDI), Internet, Intranet, Video conferencing, E-Commerce etc. ERP eliminates the most of the business problems like Material shortages, Productivity enhancements, Customer service, Cash Management, Inventory problems, Quality problems, Prompt delivery etc., ERP not only addresses the current requirements of the company but also provides the opportunity of continually improving and refining business processes. ERP provides business intelligence tools like Decision Support Systems (DSS), Executive Information System (EIS), Reporting, Data Mining and Early Warning Systems (Robots) for enabling people to make better decisions and thus improve their business processes Components of ERP The components of an ERP system are the common components of a Management Information System (MIS). ERP Software - Module based ERP software is the core of an ERP system. Each software module automates business activities of a functional area within an organization. Common ERP software modules include product planning, parts purchasing, inventory control, product distribution, order tracking, finance, accounting and human resources aspects of an organization. Business Processes - Business processes within an organization falls into three levels - strategic planning, management control and operational control. ERP has been promoted as solutions for supporting or streamlining business processes at all levels. Much of ERP success, however, has been limited to the integration of various functional departments.

3 ERP Users - The users of ERP systems are employees of the organization at all levels, from workers, supervisors, mid-level managers to executives. Hardware and Operating Systems - Many large ERP systems are UNIX based. Windows NT and Linux are other popular operating systems to run ERP software. Legacy ERP systems may use other operating systems. BPR and ERP Business Process Reengineering is a pre-requisite for going ahead with a powerful planning tool, ERP. An in depth BPR study has to be done before taking up ERP. Business Process Reengineering brings out deficiencies of the existing system and attempts to maximize productivity through restructuring and re-organizing the human resources as well as divisions and departments in the organization Selection of ERP Once the BPR is completed the next task is to evaluate and select a suitable package for implementation. Evaluation of the right ERP package is considered as more crucial step. Evaluation and selection involves: Checking whether all functional aspects of the Business are duly covered Checking whether all the business functions and processes are Checking whether all the latest IT trends are covered Checking whether the vendor has customizing and implementing capabilities. Checking-whether the business can absorb the cost Checking whether the ROI is optimum Implementation of ERP Implementing an ERP package has to be done on a phased manner. Step, by step method of implementing will yield a better result than. big-'bang introduction.

4 The total time required for successfully implementing an ERP package will be anything between 18 and 24 months. The normal steps involved in implementation of an ERP are as below: Project Planning Business & Operational analysis including Gap analysis Business Process Reengineering Installation and configuration Project team training Business Requirement mapping Module configuration System interfaces Data conversion Custom Documentation End user training Acceptance testing Post implementation/audit support The above steps are grouped and sub-divided into four major phases namely Detailed discussions, Design & Customization, Implementation and Production. Detailed Discussion Phase: Task: - Project initialization, Evaluation of current processes, business practices, Set-up project organization Deliverables: - Accepted norms and Conditions, Project Organization chart, Identity work teams

5 Design and customization Phase Task: - Map organization, Map business process, Define functions and processes, ERP software configuration and Build ERP system modifications. Deliverables: - Organization structure, Design specification, Process Flow Diagrams, Function Model, Configuration recording and system modification. Implementation Phase Task: - Create go-live plan and documentation, Integrate applications; Test the ERP customization, Train users Deliverables: - Testing environment report, Customization Test Report and Implementation report Production Phase Task: - Run Trial Production, Maintain Systems Deliverables: - Reconciliation reports, Conversion Plan Execution Benefits of ERP Help reduce operating costs ERP software attempts to integrate business processes across departments onto a single enterprise-wide information system. The major benefits of ERP are improved coordination across functional departments and increased efficiencies of doing business. The immediate benefit from implementing ERP systems we can expect is reduced operating costs, such as lower inventory control cost, lower production costs, lower marketing costs and lower help desk support costs.

6 Facilitate Day-to-Day Management The other benefits from implementing ERP systems are facilitation of day-to-day management. The implementations of ERP systems nurture the establishment of backbone data warehouses. ERP systems offer better accessibility to data so that management can have up-to-the-minute access to information for decision making and managerial control. ERP software helps track actual costs of activities and perform activity based costing. Support Strategic Planning Strategic Planning is "a deliberate set of steps that assess needs and resources; define a target audience and a set of goals and objectives; plan and design coordinated strategies with evidence of success; logically connect these strategies to needs, assets, and desired outcomes; and measure and evaluate the process and outcomes." (Source) Part of ERP software systems is designed to support resource planning portion of strategic planning. In reality, resource planning has been the weakest link in ERP practice due to the complexity of strategic planning and lack of adequate integration with Decision Support Systems (DSS).

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