INFORMATION PROCESSING AND MANAGEMENT

CHAPTER – V

Prepared
&
Presented By
Dr. A. SURESH KUMAR
Assistant Professor
Department of Management
Bule Hora University
Enterprise Resource Planning
Concepts

5.1 Overview and Concepts of ERP

5.2 Evolution of ERP
5.3 5.4 Benefits of ERP
5.4 ERP Implementation and Maintenance
ENTERPRISE RESOURCE PLANNING

Overview of ERP:
• Information Technology (IT) is a vital component
of successful businesses and organizations. It
constitutes an essential field of study in business
administration and management.
• Managers, entrepreneurs, or business
professionals need to have a basic understanding
of information systems.
• In order to beat the competition and to survive in
business and in today’s competitive world, one
has to manage the future.
Deliver Decision
Manage Manage
Proper makers at the
Future Information
Information right time

Use it in the Organization

Use it to the s have to The process of
best way for
full potential make use of data collection,
success
IT collection refine
and process in
the
organization

Managing the Future

Enterprise Resource Planning
• Definition:
• Enterprise – is a group of people with a common goals. involves a
complete business consisting of:
• Functions
• Divisions
• Other components used to accomplish specific objectives and defined
goals.

• Resources – are the assets of an enterprise that assigned to activities and

used in the process of producing an output, products or services.
• Ex:
• Funds,
• Materials,
• Labour,
• Machines, etc.
• Enterprise Resource Planning (ERP) is an integrated
cross functional software that re-engineers
manufacturing, distribution, finance, human
resources and other basic business processes of a
company to improve its efficiency and profitability.
• Cross functional information systems are
information systems that are integrated combinations
of business information systems.
• Sharing information resources across the functional
units of an organization, is the main function of ERP.
• ERP is also known as Enterprise systems. It enables
information to flow freely from different parts of the
firm.
Meaning of ERP
• ERP is considered as
– It is the back bone of the organization
– It is a cross functional Enterprise System
– Integrates business processes
– ERP involves several functions
– It also helps the company to achieve efficiency, agility, and responsiveness.

• ERP software typically consists of integrated modules that give a

company a real-time cross functional view of its core business processes,
such as –
– Production
– Order processing
– Sales
• And its resources such as-
– Cash
– Raw materials
– Production capacity
– People
• ERP Systems integrate the key business
process of a firm into a single software system
so that information can flow seamlessly
throughout the organization, improving
coordination, efficiency and decision making.
• In the present days, many of the corporations
have opted to replace their disparate
information system with a single integrated
system.
Enterprise Systems in a Large Organization
• The traditional view of information systems is
built around different functions, business units
and business processes.
• Managers do have a hard time in assembling the
data that they would need for a comprehensive,
overall picture of the organizational operations.
• In the earlier days, we had traditional type of
information systems with large number of
information systems built around different
functions, units, levels and business processes
each built separately.
• In the present days, the above has been simplified with ERP
firmwide integration enterprise systems that integrate key
business processes so that information can flow freely
between different areas of the firm. (as shown in the figure)
• Enterprise Software is a set of integrated modules for
applications such as Sales and distribution, Financial and
accounting, Production and operation etc., allowing data to
be used for multiple functions and business processes.
• Enterprise software models and automates many business
processes (filling an order, scheduling a shipment etc.)
• It has a goal of integrating information across the company.
• It will involve in eliminating complex, expensive links
between computer systems in different areas of the business
Enterprise System as One system for Several Business Functions
Evolution of ERP
• In the earlier years, software package used to
come in different forms and in a non-
integrated fashion, with a very high cost.
• Later on, a need was felt to integrate various
segments of an enterprise.
• Growth of Business to Business (B2B)
requirement and large database, concepts of
Supply Chain Management (SCM), Just-In-
Time (JIT) to-order manufacture made to think
about ERP.
ERP Development and Beyond
Trends in the Evolution of ERP Technologies
• Trends in the Evolution of ERP Technologies:
1. Flexible ERP
• In 1990: ERP software packages were the
mainstay of ERP implementations; criticized
for their inflexibility; gradually modified into
more flexible products. Companies who
installed ERP systems pressurized software
vendors to adopt more open, flexible,
standards based software architectures. This
makes the software easier to integrate with
other application programs of business users.
2. Web Enabled ERP Software:
• This is the next development in ERP for the
reason that Internet, Corporate intranets and
extranets grew. This prompted software
companies to use Internet technologies to
build the following into ERP systems
– Web interfaces
– Networking Capabilities.
• These would enable ERP systems conveniently
to use and connect to other internal
applications, as well as the systems of a
company’s business partners.
3. Inter – Enterprise ERP:
• By this arrangement of Internet connectivity,
inter-enterprise ERP systems were developed
that provide web-enabled links between key
business systems of a company and its
customers, suppliers, distributors etc.
4. E – Business Suites:
• Modular, web-enabled software suites that
integrate ERP, CRM, Procurement, Decision
support, enterprise portals and other business
applications and functions.
• Ex: SAP and Oracle’s E-Business suite.
BENEFITS OF ERP
• ERP system when installed gives so many
benefits to the organization.
• The main advantages of ERP are described as
follows:
1) Lead Time Reduction
2) On-Time Shipment
3) Reduction in Cycle Time
4) Improved Resource Utilization
5) Better Customer Satisfaction
6) Improved Supplier Performance
7) Reduced Quality Costs
1. Lead Time Reduction:
• Lead time is the
Time between placing an order minus Time for receiving the item.
• This is important in purchasing and inventory control
functions.
• Inventory systems have safety mechanisms like:
Safety stock
Reserve stock
Buffer stock
Reorder level etc.
to avoid the situation where the material is out of
stock.
• If the material is out of stock that will affect the delivery
schedule, customer goodwill due to delayed delivery .
• Hence materials are to be ordered well in advance before they
are actually needed or by maintaining a very high reorder
level.
• The ERP systems will help in automating the above tasks to
an optimum level. The inventory management will be highly
efficient and effective.
• Once the production schedule is identified by the production
planning system, the material management module will
prepare purchase orders for each of the items taking into
account the lead times.
• As most suppliers are connected to the organization system
and as soon as a purchase order is issued, the supplier’s
system is updated with that information and carryout the
further activities.
2. On-Time Shipment:
• Companies have to deliver the products at the
correct line to the customers at the time they
need.
• The different functions involved in the timely
delivery of the finished products to the customer
are:
Procurement of materials (Purchasing)
Plant maintenance
Material management
Sales and distribution
Production
Production planning
• These functions are made to be integrated with the
package and if the procedures are automated, they will
minimize the errors and the production efficiency will
be high.
• The time wastage will be zero and the products come
out at the right time and can be delivered to the
customer on time.
• The information is available to the management at the
desired level. And the management can keep track of
things and can take corrective actions at the right time.
• By integrating the various business functions and
automating the procedures and all the activities, ERP
systems ensure on-time delivery of goods to the
customers.
3. Reduction in Cycle Time:
• Cycle time = The time between receipt of order – The time in delivering the product
• In the case of make-to-order, the seller of the product
starts all his activities for manufacture of goods after
the receipt of order. He will then start producing the
raw materials, bought out, standard parts etc only
after receiving the order from the buyer.
• And another practice is make-to-stock. In this the
finished products are already made and will be in
inventory before the order is received. Hence the time
taken to deliver the product in the shortest time to the
customer is only the cosideration.
• In the case of make-to-order items, the ERP
systems save time by integrated information
technologies using CAD/CAM systems and
also communication systems.
• The automation can be achieved in other
stages also like:
– Material procurement
– Production planning
– Inventory control
– Plant maintenance etc. in reducing the cycle time.
4. Improved Resource Utilization:
• ERP systems are equipped with simulation capabilities to
help the capacity and resource planners to simulate the
various capacities and resource utilization under various
scenarios and select the best option.
• The different modules function effectively ensures the
following:
– The inventory is kept at the minimum level
– The machine down time is low
– The goods produced matches with the actual demand of the
customer
– The efficiency of operators would be high
– Finished goods are dispatched to the customer in the most
efficient way.
• ERP systems thus help the organizations by improving the
capacity and resource utilization.
5. Better Customer Satisfaction:
• ERP systems help in meeting the customer’s
satisfaction by producing the goods in the following
ways:
• Customer gets individual attention
• He gets the features that he wants without spending
more money and at the right time.
• Web-enabled ERP helps the customer to place the
order, track the status of the order and make the
payment all from his house.
• Customer can ask for technical support from the
company’s technical support knowledge base and by
the use of the latest development in IT by the ERP
systems. Thus, customer satisfaction is improved.
6. Improved Supplier Performance:
• An organization is to select good vendors or suppliers
and their activities are to be monitored in regard to
quality, service, and price.
• Corporations therefore rely on supplier management
and control systems to help plan, manage and control
the complex business processes associated with
global supplier partnerships.
• ERP systems provide the following:
– Vendor management and procurement tools (to coordinate
all aspects of the procurement process)
– To negotiate, monitor and control procurement costs and
schedules effectively by supporting the organization in
obtaining better product quality.
• Companies also establish partnership
agreements with suppliers to have better
business relationships and for beneficial
results in the areas of quality, delivery and
cost.
• After contracts are established, ERP systems
searches for:
– The best supplier contract
– Automatically assigns it to the corresponding
purchase order or requisition.
7. Reduced Quality Costs:
• Quality assurance and management systems in
ERP packages support the benchmarking and
use of:
1. Optimal product design
2. Process engineering with wide range of
capabilities for process supervision and
control.
3. Quality assurance information by functional
departments.
• Specification control systems under ERP
packages offer a state-of-the-art approach for:
– Documenting specifications.
– Enabling an organization to standardize, simplify
to quality assurance and control functions.
– Maintenance of standard specifications.
– Detailed sampling instructions.
– Testing procedures are performed on line.
– Providing tools for implementing TQM programs.
ERP IMPLEMENTATION AND MAINTENANCE
ERP IMPLEMENTATION
• ERP implementation phases are similar to a SDLC. But
each company adopts its own methods depending upon
their individual needs.
1. Project Investigation or Screening:
a) Company decides to go in for an ERP system
b) Search for a proper package activities is to commence.
c) Analyzing the package. This is time consuming. The
company has to select the best package out of several.
d) In order to select good one, limit the number of packages
say to 5 instead of evaluating all packages.
• Ex: People Soft is very strong for HR.
• Baan is strong for Manufacturing.
How new ERP package evolved
• Many ERP vendors have grown over time and
they have come out with new ERP package
with competition and experience to cover a
number of business processes and have
strengthened their packages.
• Hence, during analysis, the origins of the
different packages and their progressive
improvements are to be investigated in regard
to their requirements.
2. Evaluation and Selection of the Package:
a) It is the most crucial phase of implementation as
the package finally selected brings out success or
failure of the project.
b) The package is very costly. Hence, while
selecting itself, one should be cautious before
investment. The package cannot be changed.
c) None of the packages are perfect. The most ideal
one is to have a package which is more flexible
to meet the company’s needs.
d) Develop a selection criteria to evaluate all
available packages to the same scale.
e) While evaluating ERP software package,
important points to be considered are:
– Matching of companies business processes with the
package functional fit.
– Flexibility, scalability, user friendliness, fast
implementation, capability to support multisite
planning and control, degree of integration between
the components of the system.
– Possibility of frequent upgrades, availability of
reference sites, amount of customization needed,
local support infrastructure.
– Total costs such as covering license cost, training,
implementation, hardware requirements,
customization and maintenance.
3. Designing of the Implementation Process:
a) Preparing the time schedules, end dates etc.
b) Project plan developed; Roles identified; Responsibilities
assigned.
c) Organizational resources decided; Implementation leaders
identified; Team members selected; Task allocation.
d) The phase will decide:
– When to begin the project?
– How to do it?
– When the project is supposed to complete?
– How to monitor the progress?
– What control measures to be installed?
– What corrective actions to be taken when this goes out of the
control?
4. Gap Analysis:
a) It is fact that even the best ERP package custom
tailored to a company’s needs meets only 80%
of any company’s functional requirements.
b) Remaining 20% presents a problematic issue for
the company’s business process reengineering.
c) The various solutions to fill the gap are:
– Agree to be without a particular function
– Pinning your hopes on an upgrade
– Identify and use a product of third party to fill the gap
– Designing a custom program
– Altering the ERP source code
• 5. Re-engineering:
• Generally the top level managers purchase
ERP packages with an intention of reducing
number of employees (Downsizing).
• The implementation is going to involve some
change in job responsibilities, as business
processes becomes more automated and
efficient.
• No doubt, Re-engineering involves in many
cases with the reduction of people as it expects
dramatic change in its definition.
6. Configuration:
• Configuration is to bring it to a proper shape.
• This phase is important where the business processes
are to be understood properly and mapped in such a
way that the final solution arrived from this should
match up with the company’s overall goals.
• Companies stop their operations while mapping
processes are taking place. Hence the prototype have to
be used.
• This sort of configuring a company’s system identifies
both the strengths and weaknesses of company’s
business processes and explain what and how it won’t
fit the package and further identifies the gaps in
functionality.
7. Implementation Team Training:
• Simultaneously with the configuration,
implementation team is being trained.
• In this phase, the company trains its
employees to implement the new system. ERP
vendors and the consultants deployed will
leave after the implementation in the company
is over.
• Parallely, the company should build a good
in-house team to run the system themselves
and to handle the various situations.
8. Testing:
• This is to test real case and as well as extreme
case scenarios like:
– System overloads
– Multiple users logging on at the same time with the
same query
– Users entering invalid data
– Hackers trying to access restricted areas etc.
• Test cases are designed to arrive at in finding weak
links in the system and these should be eliminated.
• Once the system is ‘live’, the old system is
removed and the new system is used for doing
business.
9. End User Training:
a) The end users are given training on how to
use the system.
b) Identify the employees first who are going to
use the system.
c) Their existing skills studied, based on which
groups are made.
d) Each group is given training in the new
system.
10. Post-Implementation:
• In this phase, vendors and the hired consultants
work will be over. They will go away after
completing the porting of their work. The trained
employees in the organization have to take over.
• Any improvements or changes to be done on the
existing system are to be done by the employees
trained.
• The system is to be upgraded when new
technologies are needed. For that, the organization
should work out cost-benefit analysis.
• Training is continuous as new people among new
functionality will always be entering.