ERP ENTERPRISE RESOURCE PLANNING ENTERPRISE AN OVERVIEW DEFINITION

ERP – ENTERPRISE RESOURCE PLANNING

ENTERPRISE – AN OVERVIEW DEFINITION: An enterprise is the group of people with a common goal, which has certain resources at its disposal to achieve this goal. ERP is a commercial software package promising the integration of all the information flowing through the company (financial and accounting information, supply chain information, customer information and human resource information etc. ). INFORMATION SYSTEM: In enterprises, raw materials moves through a process and transformed into usable products. Similarly, in an information system data are supplied to a system as input, it is proceed and transformed into information as output. Through the ERP, technology transforms the data, that are available in the enterprise in usable information.

LEVELS OF AN ORGANIZATION: The organization or an enterprise is having some internal and external functions and several information levels according to its function. Strategic planning Tactical planning and management control Top level Middle level Operational control Lower level Transaction Processing LEVELS OF ORGANIZATION OR MANAGEMENT

Ø These functional levels are information generators for the enterprise. Ø All the internal/external information and functions working in isolated form and have their own information systems of data collection and analysis. Ø The information is available only to top management in the form of reports and there is no flow of information among the various departments. Ø One dept. from the same organization does not know what other does and sometimes objectives of the each department are conflicting. Ø So instead of a common goal, the various dept. pull the organization in different direction. Ø With ERP approach, all dept. knows what the others are doing, through the central database. Ø This information integration provide to meet the goal of common objective. Ø To achieve the common goal, enterprises needs transparency and free information access among the various functional depts. Ø ERP system helps to accomplish this by integrating the information and enables smooth and seamless flow of information across dept.

An information system without ERP Strategic and operational planning Sales and distribution Finance Manufacturing Human resource Production and planning Logistic management Quality management Maintenance Management Material management

An information system with an ERP System Strategic and operational planning Sales and distribution Finance Manufacturing Production and planning Quality management Material management Human resource Central database Logistic management Maintenance management

INTEGRATED MANAGEMENT INFORMATION: An information system there is a logical flow of information where data is supplied to the system as input, manipulates as process, and is transformed into information as output. Input Processed Output Work of the information system in an organization Data Processing technology Information Example of the integrated management information is Management Information system. MIS is one of the popular subsystem or technology used in ERP. MIS is a system which provides information supports for the decision making in the organization. The MIS is depicted by IPO model.

COMMON ERP MYTHS: ERP means more work and Procedures Ø ERP will make many employees redundant and jobless Ø ERP is the sole responsibility of the management Ø ERP is just for the manager ands Decision – maker Ø ERP is just for manufacturing organizations Ø ERP is just for the ERP implementation team Ø ERP slows down the organization Ø ERP is just to impress customers Ø ERP package will take care of everything Ø One ERP package will suit everybody Ø ERP is very expensive Ø Organizations can succeed without ERP Ø

REASONS FOR THE GROWTH OF ERP: Ø Ø Ø Ø Reduction of lead time Cycle time cut On time shipment Increase of inventory Doubled business Customer satisfaction Increase flexibility Better analysis and planning capabilities Easy decision making Reduce quality cost by implementing latest technology Proper utility of resources Improved information accuracy Use of client server architecture Use of open system technology

EVOLUTION OF ERP In last four decades technology has changed very rapidly. This fast improvement has reflected in respect of applications of computers in business. 50’s and 60’s: Ø Data processing was very complex, slow. Ø Business applications involved activities like card punching, program loading and processing, card verification Ø Next improvement was substitute for human clerical activities Ø Then was the invention of new s/w and h/w technology that supported designs and development methodology. Ø At end of 60’s accounting and payroll were invented. Ø The next stage of business application of computers was mainly on inventory management & control systems

70’s: Ø It was the period when they invented the Material Requirement Planning (MRP). Ø MRP utilizes s/w applications for scheduling production processes. Ø MRP generates schedules for the operations and the raw material purchases based on the production requirements of finished goods, the structure of the production system the current inventories levels etc. Ø MRP asks the following questions: l What products are we going to make? l What are the materials needed to make the products? l What are the materials that we have in stock? l What are the items that need to be purchased? 80’s: Ø The next logical step to MRP was the invention of MRP II – Manufacturing resource planning Ø It contains additional capabilities like managing sales and operational planning, financial interface and better decision making. Ø Still MRP II in any organization works in an isolated manner.

1990’s: Ø Further development of MRP II incorporated the business functions like human resources, management functions, distribution functions, financial accounting and management functions. Ø This covers all the area of an organization and is called as ERP. Ø ERP is a s/w which designed to model and automates all basic processes and functions of an enterprise from Finance to shop floor with the integrating information acr 66 oss company and eliminating complex computer systems. WHY ERP IS IMPORTANT TO A COMPANY Ø Changed almost all organization irrespective of the size and nature Ø Forces the competition to change their strategies and processes Ø Influences business partners to become more competitive Ø Improves the profits of the consulting organizations Ø Is the most important tool for business process reengineering Ø Enforces best practice of client server computing to deliver an enterprise product Ø Fully utilizes the true potential of client server computing to deliver an enterprise product Ø Changes the nature of the information systems functions and IT professionals Ø Changes the nature of jobs in all functional business areas Ø Implementation is very costly

Installing ERP systems has many advantages – both direct and indirect advantages. Ø Some benefits are tangible and some are intangible. Ø Tangible benefits that can be counted in quantity. Ø Ø Intangible benefits that cannot be counted in quantity. The figure below shows some of the tangible and intangible benefits of ERP based on the multiple answers per respondent Deloitte Consulting Ltd.

Inventory Reduction 32 Personal Reduction 27 Productivity Improvements 26 Other Management Improvements 20 Financial Close Cycle Reduction 19 IT Cost Reductions 14 Procurement Costs Reductions 12 Cash Management Improvements 11 Revenue/Profit Increases 11 Transportation/Logistics Cost Reduction 9 Maintenance Reduction On-time Delivery Improvements 7 6 TANGIBLE BENEFITS OF ERP

Information Visibility 55 New improved process 24 Customer Responsiveness 22 14 Cost Reduction Integration 13 Standardization 12 9 Flexibility Globalization 8 Technology Business Performance 7 5 INTANGIBLE BENEFITS OF ERP

INFORMATION INTEGRATION: The ERP systems are called integrated because they have the ability to automatically update data between related business functions and components. Example: You need only to update the status of an order at one place, say in the order – processing system and all the other components will automatically get updated. This information integration leads to better decision – making and resolution of problems. Another advantage of this integration is that the people who are involved in a project are also connected to each other. This kind of information integration in any organization has tremendous potential for improvement in productivity.

REDUCTION OF LEAD – TIME: The elapsed time between placing an order and receiving it is known as the lead – time. Ø The company should find out the minimum lead – time and should attempt to correct supplier’s delivery delays. Ø Ø In order to reduce the lead – times the organization should have an efficient inventory management system, which is integrated with purchasing, production planning and production dept. Ø For a company dealing with 100’s and 1000’s of raw materials and components, keeping track of the lead – times for each and every individual item manually is a practically impossible task. Ø ERP systems help in automating this task and thus make inventory management more efficient and effective. Ø So the ERP systems by virtue of their integrated nature, the use of latest technologies like EFT ( ELECTRONIC FUND TRANSFER ) & EDI (ELECTRONIC DATA INTERCHANGE) reduce the lead – times and make it possible for organizations to have the items at the time they are needed.

ON- TIME SHIPMENT: Ø Today, companies must be able to deliver customer specific products with the lead – time standard, off – the – shelf products. Ø They must be able to change the mode of production from make – to – stock to make – to – order, yet retain the cost and time advantages of the off – the – shelf products. Ø With the ERP systems, business are not limited to a single manufacturing method, instead many manufacturing and planning methods can be combined within the same operation, with unlimited flexibility to choose the best method – or combination of methods. Ø ERP systems are designed to help your company trim data transfer time, reduce errors and increase design productivity by providing an automated link between engineering and production information.

REDUCTION IN CYCLE TIME: Ø Cycle time is the time between placement of the order and delivery of the product. Ø The cycle time and the cost of production is high when we consider both the methods make – to – order and make – to – stock. Ø In the both cases, the cycle time can be reduced by the ERP systems. Ø But the reduction will be more in the case of make – to – order systems. Ø In the make – to – stock, the items are already manufactured and kept in warehouses for sales. Ø The cycle time is not reduced in the shop floor but during the order fulfillment.

IMPROVED RESOURCE UTILISATION: Ø As manufacturing processes become more sophisticated and as the philosophies of elimination of waste and constraint management achieve broader acceptance, manufacturers place increased emphasis upon planning and controlling capacity. Ø The capacity planning features of most ERP systems offers both rough – cut and detailed capacity planning for improving the capacity and resource utilization. BETTER CUSTOMER SATISFACTION: Ø Customer satisfaction means meeting or exceeding customers requirements for a product or service. Ø Assessment of the degree of satisfaction is usually made on at least three measures: l l l Whether the product or service includes the features that are most important to the customer. Whether the company can respond to the customers demands in a timely manner Whether the product or service is free of defects and performs as expected.

IMPROVED SUPPLIER PERFORMANCE: Ø The quality of the raw materials or components and the capability of the vendor to deliver them on – time are of critical importance for the success of any organization. Ø So an organization should choose its vendors or suppliers very carefully and monitor their activities closely so that problem can be corrected before it can disrupt the functioning of the company. Ø ERP systems provide vendor management and procurement support tools designed to coordinate all aspects of the procurement process. Ø The quality management system in the ERP systems provides all the tools needed to implement total quality management programs within an organization’s procurement function.

INCREASED FLEXIBILITY: Flexibility is the key issue in the formulation of strategic plans in companies. Ø Flexibility means quickly changing something that is being done or changing to adjust to new product designs. Ø Product flexibility is the ability of the operation to efficiently produce highly customized and unique products. Ø ERP systems not only improve the flexibility of the manufacturing operations but also the flexibility of the organization as a whole. Ø BETTER ANALYSIS AND PLANNING CAPABILITIES: ERP systems boost the planning functions by enabling the comprehensive and unified management of related business functions and their data. Ø It helps to utilize fully many types of decision support systems and simulation functions, what – if analysis and so on. Ø The decision makers can get the information they want, thus enaling them to make better and more informed decisions. Ø

REDUCED QUALITY COSTS: Ø Quality is defined in many ways – excellence, conformance to specifications, fitness for the value for the price and so on. Ø The American Society for Quality Control (ASQC) had developed a typology of quality related costs that are based on the work of several quality masters. Ø The typology has four categories: l Internal failure costs (cost of scarp, re – inspection and low production items that are detected before they leave the company). l External failure costs ( warranty claims, repairs and service costs that result when the failure is detected in the market place). l Appraisal costs (cost of inspecting upon arrival, during manufacture, in laboratory tests and by outside inspectors). l Prevention costs (design and development of new quality equipment, evaluation costs of a new product or service, training of quality personnel. Specification control systems in ERP packages offer a state – of – art approach for documenting specifications and enable an organization to standardize and simplify its quality assurance and control functions.

IMPROVED INFORMATION ACCURACY & DECISION – MAKING CAPABILITY: In today’s competitive business environment, the key resource of every organization is information. Ø The three fundamental characteristics of information are accuracy, relevancy, and timeliness. Ø This is the strength of ERP systems integration and automation and that is why implementation of and ERP system will help in improving the information, accuracy and will help in better decision making. Ø USE OF LATEST TECHNOLOGY: Ø Ø Ø ERP package vendors revitalized that in order to grow and to sustain that growth they would have to embrace the latest development in the field of information technology. It is this quick adaptation to the latest changes in IT that makes the flexible adaptation to changes in future development environment possible. It is this flexibility that makes the incorporation of the latest technology possible during system designing, development and maintenance phases.

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