ENTERPRISE RESOURCE PLANNING

ERP (enterprise resource planning) is an industry term for the broad set of activities
supported by multi-module application software that help a manufacturer or other
business manage the important parts of its business, including product planning, parts
purchasing, maintaining inventories, interacting with suppliers, providing customer
service, and tracking orders. ERP can also include application modules for the finance
and human resources aspects of a business. Typically, an ERP system uses or is
integrated with a relational database system. The deployment of an ERP system can
involve considerable business process analysis, employee retraining, and new work
procedures

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.

The term ERP originally referred to how a large organization planned to use
organizational wide resources. In the past, ERP systems were used in larger more
industrial types of companies. However, the use of ERP has changed and is extremely
comprehensive, today the term can refer to any type of company, no matter what
industry it falls in. In fact, ERP systems are used in almost any type of organization -
large or small.

In order for a software system to be considered ERP, it must provide an organization

with functionality for two or more systems. While some ERP packages exist that only
cover two functions for an organization (QuickBooks: Payroll & Accounting), most
ERP systems cover several functions.

Today's ERP systems can cover a wide range of functions and integrate them into one
unified database. For instance, functions such as Human Resources, Supply Chain
Management, Customer Relations Management, Financials, Manufacturing functions
and Warehouse Management functions were all once stand alone software applications,
usually housed with their own database and network, today, they can all fit under one
umbrella - the ERP system.

ERP Systems – Evolution

The focus of manufacturing systems in the 1960's was on Inventory control. Most
of the software packages then (usually customized) were designed to handle
inventory based on traditional inventory concepts. In the 1970's the focus shifted to
MRP (Material Requirement Planning) systems which translated the Master
Schedule built for the end items into time-phased net requirements for the sub-
assemblies, components and raw materials planning and procurement.
In the 1980's the concept of MRP-II (Manufacturing Resources Planning) evolved
which was an extension of MRP to shop floor and Distribution management
activities. In the early 1990's, MRP-II was further extended to cover areas like
Engineering, Finance, Human Resources, Projects Management etc i.e. the
complete gamut of activities within any business enterprise. Hence, the term ERP
(Enterprise Resource Planning) was coined.
In addition to system requirements, ERP addresses technology aspects like
client/server distributed architecture, RDBMS, object oriented programming etc.
ERP Systems - Bandwidth ERP solutions address broad areas within any business
like Manufacturing, Distribution, Finance, Project Management. Service and
Maintenance, Transportation etc. A seamless integration is essential to provide
visibility and consistency across the enterprise.
An ERP system should be sufficiently versatile to support different manufacturing
environments like make-to-stock, assemble-to-order and engineer-to-order.
The system should be complete enough to support both Discrete as well as Process
manufacturing scenario's. The efficiency of an enterprise depends on the quick flow
of information across the complete supply chain i.e. from the customer to
manufacturers to supplier. This places demands on the ERP system to have rich
functionality across all areas like sales, accounts receivable, engineering, planning,
Inventory Management, Production, Purchase, accounts payable, quality
management, production, distribution planning and external transportation. EDI
(Electronic Data Interchange) is an important tool in speeding up communications
with trading partners.
More and more companies are becoming global and focusing on down-sizing and
decentralizing their business. ABB and Northern Telecom are examples of
companies which have business spread around the globe. For these companies to
manage their business efficiently, ERP systems need to have extensive multi-site
management capabilities. The complete financial accounting and management
accounting requirements of theorganization should be addressed. It is necessary to
have centralized or de-centralized accounting functions with complete flexibility to
consolidate corporate information

Evaluation Criteria
Some important points to be kept in mind while evaluating an ERP software
include:
1) Functional fit with the Company's business processes
2) Degree of integration between the various components of the ERP system
3) Flexibility and scalability
4) Complexity; user friendliness
5) Quick implementation; shortened ROI period
6) Ability to support multi-site planning and control
7) Technology; client/server capabilities, database independence, security
8) Availability of regular upgrades
9) Amount of customization required
10) Local support infrastructure
11) Availability of reference sites
Total costs, including cost of license, training, implementation, maintenance,
customization and hardware requirements

ERP Systems -- Implementation

The success of an ERP solution depends on how quick the benefits can be reaped
from it. This necessitates rapid implementations which lead to shortened ROI
periods. Traditional approach to implementation has been to carry out a Business
Process Re-engineering exercise and define a ``TO BE'' model before the ERP
system implementation. This led to mismatches between the proposed model and
the ERP functionality, the consequence of which was customizations, extended
implementation time frames, higher costs and loss of user confidence.
The BAAN approach is to conduct a concurrent Business Process Re-engineering
during the ERP implementation and aim to shorten the total implementation time
frame. Two scenario's can be distinguished:
1) Comprehensive Implementation Scenario: Here the focus is more on business
improvement than on technical improvement during the implementation. This
approach is suitable when: Improvements in business processes are required.
Customizations are necessary Different alternative strategies need to be evaluated
High level of integration with other systems are required Multiple Sites have to be
implemented.
2) Compact Implementation Scenario: Here the focus is on technical migration
during the implementation with enhanced business improvements coming at a later
stage. This approach is suitable when; Improvements in business processes are not
required immediately Change-minded organization with firm decision making
process Company operating according to common business practices. Single site
has to be implemented.

ERP Systems - The Future

The Internet represents the next major technology enabler which allows rapid
supply chain management between multiple operations and trading partners. Most
ERP systems are enhancing their products to become ``Internet Enabled'' so that
customers worldwide can have direct to the supplier's ERP system. ERP systems
are building in the Workflow Management functionally which provides a
mechanism to manage and control the flow of work by monitoring logistic aspects
like workload, capacity, throughout times, work queue lengths and processing
times.
Recognizing the need to go beyond the MRP-II and ERP vendors are busy adding
to their product portfolio. BAAN for example has already introduced concepts like
IRP (Intelligence Resource Planning), MRP-III (Money Resources Planning) and
has acquired companies for strategic technologies like Visual Product
configuration, Product Data Management and Finite Scheduling

The Effect of ERP on Organizations

ERP (Enterprise Resource Planning) systems are used in the organizations for
information integration and aligning & streamlining their processes for delivering
high value to the customers. Through its very use, it influences manager's jobs and
the organization structure as well.

ERP has significant impact on the organizations and has tremendously changed the way
of manager's job and organization structures.ERP implementation on five dimensions
of Manager's job (autonomy, use of power, delegation, people skills and privileged
information), five dimensions of organizational structure (specialization, formalization,
centralization, standardization and complexity of work flow) and on the flexibility of
organization has been effected by the use of ERP in organizations of all levels.

ERP systems have become the system of choice for the majority of publicly traded
companies and have radically changed the way accounting information is processed,
analyzed, audited, and disseminated. In this study, we examine whether ERP system
implementations have impacted the decision usefulness of accounting information. We
find that ERP adoptions lead to a trade-off between increased information relevancy
and decreased information reliability for external users of financial statements. After
implementing the system, firms concurrently experience both a decrease in reporting
lag and an increase in the level of discretionary accruals. Contrary to expectations,
adopting more ERP modules did not augment these effects. These results should be of
interest to financial statement preparers initially adopting or
implementing new versions of ERP applications, auditors serving clients with ERP
systems, and regulators overseeing the financial markets and consolidation in the ERP
industry.

While ERP has been around for little more than a decade, more companies are now
seeing the benefits of using it. Many companies in the Middle East and Africa have
failed to utilize the benefits of ERP, and the reason for this deals with procedure rather
than cost. Many of these companies have used the same methods for many years, and
are unwilling to switch to something new.

At parieto-occipital sites, in both experiments, the repeated possible and impossible

non-target items elicited less positive ERP waveforms than did first presentations
beginning at about 300 ms. The briefly reduced frontal negativity to repeated items is
consistent with familiarity arising from a facilitation of access to conceptual, semantic
and visuo-spatial representations during object categorization. The polarity of the
parieto-occipital effect was the reverse of what is usually found in stimulus repetition
tasks, although it is consistent with earlier work using similar visual stimuli. It is
interpreted as reflecting the availability of a newly formed representation (i.e., token) of
the object just experienced.

The Advantages and Disadvantages of ERP

Advantages of ERP:

In the absence of an ERP system, a large manufacturer may find itself with many
software applications that do not talk to each other and do not effectively interface.
Tasks that need to interface with one another may involve:

• design engineering (how to best make the product)

• order tracking from acceptance through fulfillment
• the revenue cycle from invoice through cash receipt
• managing interdependencies of complex Bill of Materials
• tracking the 3-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 on a
granular level.

Change how a product is made, in the engineering details, and that is how it will now
be made. Effective dates can be used to control when the switch over will occur from
an old version to the next one, both the date that some ingredients go into effect, and
date that some are discontinued. Part of the change can include labeling to identify
version numbers.

Computer security is included within an ERP to protect against both outsider crime,
such as industrial espionage, and insider crime, such as embezzlement. A data
tampering scenario might involve a terrorist altering a Bill of Materials so as to put
poison in food products, or other sabotage. ERP security helps to prevent abuse as well.

Disadvantages of ERP:
Many problems organizations have with ERP systems are due to inadequate investment
in ongoing training for involved 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 how it is used.

Limitations of ERP include:

• Personnel turnover; companies can employ new managers lacking education in

the company's ERP system, proposing changes in business practices that are out of
synchronization with the best utilization of the company's selected ERP.
• Customization of the ERP software is limited. Some customization may involve
changing of the ERP software structure which is usually not allowed.
• 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 to install often ranging from 30,000 to
500,000,000 for multinational companies.
• ERP vendors can charge sums of money for annual license renewal that is
unrelated to the size of the company using the ERP or its profitability.
• Technical support personnel often give replies to callers that are inappropriate for
the caller's corporate structure. Computer security concerns arise, for example when
telling a non-programmer how to change a database on the fly, at a company that
requires an audit of changes so as to meet some regulatory standards.
• ERP 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.
• Systems can be difficult to use.
• Systems are too restrictive and do not allow much flexibility in implementation
and usage.
• The system can suffer from the "weakest link" problem—an inefficiency in one
department or at one of the partners may affect other participants.
• 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.
• There are frequent compatibility problems with the various legacy systems of the
partners.
• The system may be over-engineered relative to the actual needs of the customer.